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Is the current system of corporate governance working?

29 January 2017 by Henry Ker

Is the current system of corporate governance working? - read more

The latest survey of the Governance and Compliance/Core community

There is currently a huge amount of focus on whether the UK’s system of corporate governance is fit for purpose – the BEIS Select Committee launched an inquiry at the end of last year and the Government recently released its Green Paper on the topic.

We polled the Governance and Compliance/Core community to gauge its thoughts on the issue – firstly is the current system working? We had mixed responses on this question, with a significant section answering ‘maybe’. Of those who felt more definitively about the question, 39% answered ‘yes’ and 16% ‘no’.

Some respondents who answered ‘maybe’ qualified their responses, with one explaining ‘the system is working but not fully. There are too many conflicting pressures and influences on boards (internal and external, short term and long term etc.) as well as unrealistic expectations as to what boards can achieve with very limited time’.

Others blamed individuals: ‘I believe that the system works but there will always be some who bring governance into disrepute. No amount of regulation will ever totally stop that’. Another respondent agreed, stating ‘Any system will no doubt have exceptions where people deliberately find ways around the rules.’

Others highlighted that we only tend to hear about the problems, which are in the minority: ‘We hear a great deal about corporate failings and scandals but nothing about the many companies that get it right most of the time and that is a shame.’ Another agreed ‘There are very few problems but those that arise are high profile and have caught the attention of press/politicians’, and another ‘[the system is] not working if quantum of pay is the only issue anyone wants to focus on. For pretty much everything else, it’s working.’

One person highlighted a different issue, ‘The system seems to be in constant change, with little time to evaluate the impact of change prior to the next move’. This neatly brought us onto our next question: if you could propose one change to the current system of corporate governance, what would it be?

The top three topics were remuneration, simplification and enhancing governance in private companies. On remuneration the group was split. Some called it out for being too high, with comments such as, ‘Executive pay is the biggest issue and this does need to be tackled, recognising the principles of the free market’ and ‘a mandatory salary cap based on an appropriate measure e.g. earnings before tax’, yet others suggested the focus needs to move away from remuneration: ‘Too much attention [on] remuneration matters which usually impact on a very small [number] of people’.

On the subject of simplification, respondents were clear: ‘Make the red tape simpler. Governance is good. Over governance is burdensome and counterproductive’. Some reinforced the call for a period of calm, with one saying ‘let things settle so that effectiveness can be evaluated rather than constant change’, and another, ‘perhaps it’s time to sit down with a blank sheet of paper and ask what we would do if we were to start again rather than adding layer after layer of new changes’.

Another popular topic was enhancing governance for private companies. Comments included: ‘Strengthening the corporate governance standards that private companies of a certain size are required to comply with’; ‘I would extend corporate governance expectations to larger non-listed businesses. The majority of the UK economy is based upon such businesses and yet they largely go under the radar’; and ‘alignment of governance between that of listed companies and private companies; the Government is right to look at governance of large private companies and a higher threshold of governance is needed in the private sector because the impact if governance fails can be devastating for individuals.’

If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email team@core-partnership.co.uk

Conducted in association with The Core Partnership

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