Addressing corporate governance reform concerns in a changing landscape
Addressing corporate governance reform concerns in a changing landscape
It’s been nearly four years since the Brydon report was published and nearly five since the Kingman report. Both contained clear recommendations in relation to audit and corporate governance reform, most of which are conducive to the initial goals of enhancing corporate governance, increasing transparency and avoiding surprising corporate failure.
In the last four years we’ve seen four prime ministers, economic downturns, conflict in Eastern Europe, and more recently the Middle East, as well as a global pandemic. It is hardly surprising that there has been substantial resistance to the reform plans. However, the original rationale remains and is still intellectually robust.
That said, it was still an unexpected development to many when the government announced that it was shelving its “draft regulations consultation after companies raised concerns about imposing additional reporting requirements.”
But where does this leave those who had started projects to prepare for the impending changes and those considering their next steps?
The future of corporate governance reform – what should you do now?
Since the laws were never really the driver for making improvements to governance, the majority of organisations with programmes in flight are continuing. Most organisations started these programmes because they see the benefits of a stronger control environment, better Board visibility and more targeted assurance.
In light of the government shelving official reforms, below we have set out each proposal and our suggestions for what businesses should do next. This should be considered in the knowledge that the Financial Reporting Council’s (FRC) consultation on its proposed amendments to the Corporate Governance Code (the Code) is still ongoing, the results of which, expected in Q4, may change the considerations outlined below.
Original proposal |
Impact of withdrawal |
Considerations |
|
---|---|---|---|
1 |
Resilience statement |
|
|
2 |
Capital maintenance and disclosures regarding dividends |
|
|
3 |
Audit and Assurance Policy (AAP) |
|
|
4 |
Reporting risks and internal controls declaration |
|
|
5 |
Fraud statement |
|
|
6 |
New regulator |
|
|
7 |
Public interest entity (PIE) definition |
|
|
In the wake of the announcement, stakeholders find themselves at a critical decision point, tasked with redefining the path towards enhanced transparency, accountability, and responsible business conduct. The appetite from investors is undoubtedly still there, and rather than signalling an instant pause to proceedings, this should be viewed as a catalyst for creative and collaborative solutions, whilst keeping one eye on proportionality and pragmatism. We also note that the requirement for a controls declaration remains, and this has been the focus of most companies efforts to date.
In a world where businesses are constantly searching for a competitive edge, does voluntary adoption and self-regulation of now shelved legislation offer businesses an innovative way to appease a market hungry for transparency? Or will the FRC drive a corporate governance shift through regulation?
In essence, the shelving of legislation should be an opportunity to recalibrate your strategies rather than a cause for stagnation. It invites stakeholders to demonstrate resilience and adaptability in the pursuit of a corporate governance framework that reflects the evolving expectations of a responsible and conscientious society.
By embracing our suggested actions, you can ensure that the spirit of reform endures, irrespective of legislative delays, and pursue a corporate landscape defined by integrity, accountability and sustainable practices.
If you have any queries or would like further information, please contact Michael Stallard.