Anthony Carey: Shaking up corporate governance

Corporate governance is suddenly a hot topic '“ it started when Theresa May launched her leadership bid last July, was followed by a parliamentary inquiry then a government green paper, and last week Jeremy Corbyn joined in.

Labour leader Jeremy Corbyn has joined the debate over corporate governance. Picture: John Devlin

The green paper on corporate governance reform sets out options on executive pay; strengthening the employee, customer and wider stakeholder voice; and corporate governance in large privately held businesses. Though important, reform needs to extend beyond these areas. Otherwise we run the risk of partial solutions with unintended consequences.

The UK Corporate Governance Code is at the heart of the way we run listed companies. The code sets out good practice expectations that can be raised over time and tailored to the circumstances of individual businesses.

This approach works well so long as there is good board “buy-in”, effective engagement by investors and, on occasion, the threat of government action if business does not respond effectively.

The Cadbury Report, published 25 years ago, led to the first code, which has been revised periodically. A review of boards and how they work is, however, now overdue so as to take account of the enormous changes brought about by the likes of globalisation, technology and changing societal attitudes.

To secure widespread support for necessary reforms, we need to establish a corporate governance commission to lead the review – with its membership drawn from the boardroom, investors, employees, customers and civil society. It should report back within a year and its focus should be how the boards of listed and other major companies can promote sustainable success for the benefit of all their stakeholders and for wider society.

The commission would have a busy initial agenda looking at the issues for inclusion in new corporate governance and stewardship codes, the latter being applied by major investors, and considering how the implementation of the new codes should be monitored. It would also work with investors to navigate the chain of intermediaries so they can ascertain the views of their beneficiaries in the shares they hold.

The new governance code would focus on the purpose, values and culture of the organisation; a strong emphasis on the “tone from the top” and on the board’s engagement with its stakeholders; fair remuneration at all levels of the business and promoting innovation and productivity.

The time has come for the business community and those representing its key stakeholders, with the support of government, to have the courage to establish a corporate governance commission to help create boards committed to serving society through fulfilling their inspiring purposes.

• Anthony Carey is head of board practice at business advisory and accountancy group ­Mazars

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