"Some people see private enterprise as a predatory
target to be shot, others as a cow to be milked, but few are those
who see it as a sturdy horse pulling the wagon." –
An article in the Financial Times at the weekend struck a chord
with me. The author was making the argument against a proposal from
the Institute of Directors to update its six-year-old corporate
governance code for private companies, saying that 'The IOD and
government should follow the example of owner managers: mind their
Here at ICSA: The Governance Institute, we do not always agree
with our friends at the Institute of Directors, but in this case we
are on their side and an edited version of this blog has been
submitted as a letter to the editor of the FT.
The writer appears to have confused governance with red tape,
quoting Richard Branson's comment that he always carries
scissors to cut the red tape that gets in his way. This is a common
mistake, but a mistake nonetheless. Governance is, quite simply,
the mechanism for owners to oversee the management of
organisations, and by which management oversee their day-to-day
I am sure that Mr Branson has plenty of mechanisms in place to
oversee those he has charged with managing his businesses. This is
governance, although we do not always think of it as such. At ICSA,
we see the requirement for similar mechanisms in organisations in
all sectors, including the NHS, academy trusts and charities.
Transparent governance is important. As the article says, there
are legal and regulatory requirements on companies of all sizes.
Companies are required to submit annual reports and financial
statements to Companies House, where they will remain in the public
domain for, currently and rightly, twenty years.
Directors of all companies, however small, have a statutory duty
to promote the success of a company for the benefit of its members
as a whole. They must also have regard to the long-term
consequences of their decisions, and the impact on the interests of
employees, suppliers, customers, communities and minority
Many larger private companies have established governance
structures to ensure that this happens. BHS had done so – the
question which will no doubt come before the courts in due course
is whether the directors gave appropriate weight to those
Where ICSA would part company just a little with the IoD is that
we do not believe that a new code is necessary. Private companies
should simply be expected to have more areas where they depart from
the existing UK Corporate Governance Code.
The article argues that 'private companies are very often
the property of founders or their families. As long as they treat
staff, customers and suppliers decently and within the law,
governance is up to them.' This is true. But our experience is
that many directors are not as familiar with these duties and their
many other legal obligations as they should be, and that this is
particularly the case in private companies.
That is one of the reasons why we advocate that all
organisations large enough to require audited accounts, whether
listed companies or not, should be required to indicate in their
annual report where they have not complied with the UK Corporate
Governance Code and the reasons why they have chosen not to do so.
They should also have an appropriately qualified governance
professional to advise directors on their duties and help them
navigate their way through their legal obligations. This will not
prevent such issues arising. It did not, for example, in the case
of BHS. But it will help to ensure that proper thought is given to
Simply leaving private companies which have significant impacts
on our society to 'get on with it' is no longer a tenable
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