London, 5 April 2017 – ICSA: The Governance Institute welcomes the review of the UK Corporate Governance framework contained in the Business, Energy and Industrial Strategy Committee report on corporate governance published this morning. The Committee has undertaken a detailed and rigorous analysis of the principal issues and we agree with many, although not all, of their conclusions.
We are pleased to see the recognition given to the strength of the UK corporate governance framework and support the greater powers being proposed for the Financial Reporting Council (FRC) to bring the central oversight of corporate governance and compliance with s172 more into line with the level of regulatory oversight given to audit and accounting. The review of the UK Corporate Governance Code (the Code) being undertaken by the FRC later this year will be an opportunity to balance the recommendations of the Committee against the need for proportionate response to the issues that the Committee has identified and the balance between legislation, regulation and market practice that is essential to recognise the variety of companies and stakeholders in our market. One of the challenges for the FRC will be to balance the desire of the Committee and some others for more to be included in the Code against the FRC’s stated desire to simplify and shorten it. We are also pleased to see that the Committee has resisted calls for annual binding votes on pay – as the report notes, the case for this has not been established – but consider their proposals for strengthening the impact of lost remuneration votes to be sensible and proportionate and the focus on the importance of diversity.
We welcome the focus on stakeholders in the report. This aspect of governance is vitally important. Stakeholder engagement is good business sense and the introduction of stakeholder panels will help some companies achieve this better. It is sometimes asserted that directors do not pay sufficient attention to the interests of stakeholders but that is not the experience that our members have reported to us. ICSA is working with the Investment Association on developing some guidance around good practices in stakeholder engagement with examples of how many boards already successfully ascertain the views of their stakeholders which is due to be published this summer.
We also welcome the attention to the importance of the role of NEDs, the appropriate training of directors and their need for professional support. It is our members’ experience that the overwhelming majority of companies provide this through the company secretary but, where this is not the case, it certainly should be.
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute, commented “This is an important report which focusses, rightly, on the issues of public trust in business, the balance of the responsibilities that a business has to its owners and to its other stakeholders and the importance of proper training and support for company directors. There are some extremely good and innovative ideas contained within the report but one or two which, perhaps, focus more on alleviating symptoms than curing the underlying cause. There are also some which will need careful thought on their implementation, for example the idea of ‘traffic light’ ratings. We will be considering the report in more detail and, as the independent professional body for governance, publishing our considered response to the report in due course.”
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