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Better governance: are board expectations realistic?

A significant proportion of corporate governance practitioners are unsure whether the UK’s system of corporate governance is fit for purpose. According to a poll published last week [01-Feb-17] by the UK’s corporate secretary professional body, ICSA,  and recruitment specialist The Core Partnership, 45% of respondents are on the fence, or just ‘maybe’ when asked if the current system is working. A significant number – 16% –  feel that the system is not working and 39% feel that it is.

ICSA pushes for better governance

Of the respondents who answered ‘maybe’, some feel that there are too many conflicting pressures and influences on boards for the system to work fully, as well as unrealistic expectations as to what boards can achieve with very limited time. Others expressed the view that the system seems to be in constant change with little time to evaluate the impact of change prior to the next move.

The top three topics that respondents felt required more attention were remuneration, simplification and enhancing governance in private companies. Respondents were split on remuneration with some considering it to be too high and others suggesting that too much focus was placed on the subject: ‘Too much attention [on] remuneration matters which usually impact on a very small  [number] of people’. Respondents were more united on the need for simplification, with calls to reduce red tape and for a period of calm to ‘let things settle so that effectiveness can be evaluated rather than constant change’.

What the letter asks for:
  • a governance complaint and enforcement mechanism;
  • investor and stakeholder  involvement in the governance of that mechanism;
  • encouragement for larger private companies to apply good governance principles;
  • frameworks for executive pay which are more broadly acceptable and with a long-term focus on the part of directors, investors, stakeholders and government.

In a concerted push for better governance, the ICSA co-signed a letter to the UK’s Prime Minister, Theresa May
emphasising the importance of directors’ duties under Section 172 of the Companies Act.

Along with the International Corporate Governance Network (ICGN), the Institute of Directors (IOD) and the Trades Union Congress (TUC), the letter argues that the government should create a regulatory body to effectively police corporate governance and ensure that businesses are run for the benefit of staff and society as well as shareholders. Intervention is justified, the signatories state because: “Good corporate governance is a necessary condition for any economy which both works, and is seen to work for everyone.”

What do you think?