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Raising the bar

19 December 2018 by Peter Swabey

Raising the bar

Governance has been widespread in headlines this year and is forcing the sector to set higher standards

Last month, I channelled my inner Henry V on the subject of Patisserie Valerie arguing that we should press director and auditor noses more firmly to the grindstone to ensure that we see fewer corporate failures brought about by missing millions. As I predicted, revelations have continued and the auditor of Patisserie Valerie, Grant Thornton, now finds itself up before the beak as the FRC launch an investigation into its audit of the company for the last three years. It all seems rather a mess and, going by previous FRC investigations of audit firms, it may be some time – in the Captain Oates sense – before we know what part, if any, the auditor had in the collapse.

Certainly, the board seems to have been taken by surprise which strongly suggests to me that either the directors were insufficiently engaged with their role or were wilfully misled. Talk of ‘secret’ bank overdrafts and the involvement of Mr Plod in the shape of the Serious Fraud Office perhaps suggests the latter. Clearly there is a governance issue here – although I have always been of the view that governance, however good, is unlikely to prevent fraud, but rather is a mechanism to make it more difficult. If the SFO investigation reveals an absence of fraud, then the performance of the directors will need to be looked at very closely. As we noted in our response to the Kingman review, it is striking that the only directors against whom the FRC can take action are those who happen to be members of the accountancy profession.

On a more positive note, much of my time over the last month has been occupied by the ICSA Awards – a great opportunity to recognise achievement in our profession. To the public at large, company secretaries and governance professionals work in the shadows. Even inside our own companies, the better the job they do, the more our work goes unnoticed. It’s only when something goes wrong that the importance of the job becomes suddenly visible.

“ In every sector we see a greater focus on stakeholders”

Perhaps it is because things have gone wrong so spectacularly for some companies that governance has received the focus that it has. This has been a year in which governance, especially corporate governance, has been much in the headlines and not always in a good way. We have seen the problems at BHS, Carillion and now Patisserie Valerie regularly appearing in the press; public and Parliamentary reviews of the role of the Financial Reporting Council and the statutory audit market as well as a revised UK Corporate Governance Code and a new Code for Sports Governance.

The consistent theme of both codes, and of the Government’s implementation of the output from its Green Paper seems to be that the importance of corporate reporting and the role of the governance professional are recognised throughout all aspects of our market. It was great to see so many excellent nominations from the not-for-profit sectors, not least that for the NHS merger project undertaken by the University Hospitals of Derby and Burton NHS Foundation Trust, which won the Governance Project award.

This year, we introduced a new award, for Gender Pay Gap reporting. It is important that gender pay gap reporting is clearly understood and used as a means to identify and address the barriers which drive the gender pay gap. Employers can then understand where there may be pay disparities and so identify where to take action to tackle inequality in the workplace.

This is why we recommend publishing a narrative report alongside the statutory figures which outlines an action plan that has clear targets and timelines demonstrating that organisations have analysed their figures and, most importantly, that they have understood where changes need to be made. There was some very good reporting in all categories this year, with some FTSE 250 companies giving the FTSE 100 a real run for their money, and we will be looking at some of the award winners in the coming months.

I attend many governance events throughout the year. One consistent feature of the ones I have been at recently has been the focus on reporting, and not just because I’ve been talking about the awards. In every sector we see a greater focus on stakeholders and, especially on reporting how organisations engage with their stakeholders, not least in terms of reporting to them. We should all recognise that reporting is only going to get a higher profile in our market and this is another area in which governance professionals can make a real difference for their companies.

Peter Swabey FCIS is policy and research director at ICSA: The Governance Institute

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