The many recent governance failures show the code is not enough in isolation

In the 25 years since the foundation of the UK Corporate Governance Code – the Cadbury Report – was published, its various iterations have been lauded for boosting transparency and gaining insight into the behaviour and performance of company boards.

The code states that ‘corporate governance is about what the board of a company does and how it sets the values of the company’. It also states ‘the responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship’.

The core principles of the code are leadership, effectiveness, accountability, remuneration and shareholder engagement. These principles, in their raw form, aim to encourage responsibility, ethical behaviour, measurement and communication.

As an investor there are key considerations if you are looking to invest or continue to invest in a business: considerations around whether the board is structured to fulfil its responsibilities, and how its behaviours and actions instil those same behaviours across the business.

“Corporate governance reports are not always giving us those answers or the necessary clear insight into how the business is being run”

Shareholders want to know how performance is measured and remunerated – it is important the board is communicating this effectively to them, as well as to wider stakeholders.

The answers should provide a real sense of how a board is conducting business. But the reality is corporate governance reports are not always giving us those answers or the necessary clear insight into how the business is being run.

Since the reports launch in 1992, the numerous examples of corporate governance failure must question whether we have really seen consistent good governance and true transparency, and, more importantly, why those failures were not identified and managed more effectively.

 

By Director of Investor Engagement, Brett Simnett. 

This is an extract of a full feature. Read the full article on ICSA News.

 

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