The corporate governance landscape is evolving fast, with boards grappling with a growing number of often conflicting organisational, societal and stakeholder objectives. Following a corporate governance thought leadership workshop held in Mauritius last month, Ocorian Client Director Véronique Magny-Antoine, sheds light on some of the topics at the heart of the debate.
The independence of auditors was one of the most debated questions at the workshop. Why is it so, especially since by definition auditors should exercise their duties in full independence?
In effect, auditors are required to exercise their duties in total independence. In reality however, one could question the degree of their independence given that the board of directors appoints and pays them. There is a school of thought in favour of an independent body, such as the Stock Exchange Commission, to appoint and remunerate auditors of listed companies. Another question relates to the depth of the auditing exercise. Increasingly, it is argued that professional scepticism should underpin the whole audit process.
The question of executive pay is another burning issue. What is the current thought when it comes to this pervasive feature of today's corporate world?
That question did get a lot of attention. Though full disclosure of executive pay is not yet on the agenda everywhere – at least not yet in Mauritius – there is a trend to move in that direction. Starting 1 January 2019, the disclosure of pay ratio, as a reflection of the remuneration gap, has become compulsory for UK listed companies with more than 250 employees. Still related to remuneration but at this stage an early proposal, some countries are in favour of boards adopting policies on recoupments and clawbacks on bonuses to CEOs and senior executives in the event of corporate harm. Until remuneration directives permeate companies of all sizes, public and private, the pressure on remuneration committees will persist. It is therefore a matter of good practice that such committees should have a majority of independent directors.
It is one thing to try to bring some restraint to hefty CEO packages. However, how are things evolving when it comes to the inclusion of employees and of women in particular, on boards?
Things are moving relatively fast in the area of female representation on boards. In the UK, the target is to reach 33% of women on the boards of FTSE350 companies by 2020. In Mauritius too, women are slowly finding their way to the boardroom. The latest amendment to the Finance Act of Mauritius will make it compulsory to have at least one woman on the board of all listed companies.
Coming now to the question of employee representation on boards, there are already a few cases of good practice. In the UK, independent directors run employee advisory panels and they ensure the employees make themselves heard. Still better practice is the case of Germany where one representative of employees actually sits on the board of directors. Pay inequality between men and women remains present everywhere, irrespective of industry. In this respect, a growing number of bodies are advocating gender pay gap reporting to map progress in eliminating disparities. On the wider front of employee inclusion, some tools have been around for a while. Share participation for instance, where implemented, has raised productivity and improved the bottom line.
Social media today plays the role of an amplifier of corporate deeds, whether good or bad. Can social media help to promote a culture of corporate governance?
The views relayed at the workshop are that social media is positively correlated with corporate governance. Due to their amplifier effect, social media platforms help to gather and crystallise opinions, acting as an important safety valve for corporate governance. In today's digital world, the social media phenomenon also ties up closely with that of shareholder activism. Nowadays, boards cannot afford to ignore the combined power of social media and shareholder activism, as both interplay to influence and shape corporate governance.
The workshop also brought to the fore the question of whistleblowing. Is the effect of whistleblowing on corporate governance positive or negative?
Nowadays, whistleblowing is taking on an important dimension. As a result, most Codes of Corporate Governance include a section on whistleblowing, however small. Increasingly, companies are encouraged to have a whistleblowing policy to protect them. In England, the law leans further towards protection in making provision for the whistleblower to benefit from legal representation. In other countries, some debates are emerging as to whether or not a mechanism should be in place to reward whistleblowers who speak up in the public interest or that of their company.
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