In the introduction to its 'Corporate Culture and the Role
of Boards' report, published last week, the Financial Reporting
Council states that in its view 'the UK governance model
remains efficient and effective'.
Although its scope has broadened, the way the model works
– a mixture of law, reporting and 'comply or explain'
best practice policed by shareholders – is essentially the
same one devised by the Cadbury Committee nearly a quarter of a
It is a statement of the blindingly obvious to say that there
have been many significant changes in the environment in which
companies operate since then, globalisation and digitalisation
foremost among them. It seems inevitable that equally radical
changes will occur in the next 25 years.
In the light of those changes, is the UK corporate governance
model really still fit for purpose? And will it prove to be fit for
As far as the objectives underpinning the model are concerned, I
agree with the FRC. The principles set out in the original Cadbury
Code in 1992 are as relevant now as they were then, and will
continue to be. The FRC is also right that flexibility is and must
remain a hallmark of the UK approach.
But we need to distinguish between the objectives and the means
of achieving them. At the very least, questions need to be asked
about whether the specific mechanisms and systems we have put in
place remain effective. Questions such as:
Can the stewardship model work
effectively if it is dependent on global investors with thousands
of companies in their portfolio and, in many cases, no geographical
or emotional attachment to the UK?
Does the ever greater amount of
information available on companies' activities – whether
generated by the company or by others – really enable
shareholders and other stakeholders to hold them to account? If
not, what would real transparency and accountability look
Can existing risk management systems
deal with intangibles such as brand and reputation that now account
on average for two-thirds of a company's value, and also with
the increasingly dispersed and 'virtual' nature of many
Is it realistic to place greater
expectations and responsibilities on boards in relation to the
operational aspects of the company's activities when they
arguably have less direct control over those activities than they
used to, due to changes in business models and working practices?
If not, what is the alternative?
These are some of the questions that the ICSA: The Governance
Institute is beginning to reflect on as it prepares its own report
on the future of governance, to be published early in 2017. I
expect that many of you will be doing the same. We would welcome
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