Corporate governance: Look at the bigger picture, urges ACCA

Excessive focus on prescriptive legal measures regarding corporate governance can end up masking the very problems they look to resolve, warns trade body

The Government needs to show stronger support for voluntary measures which improve corporate governance rather than impose a legislative mandate, according to ACCA (the Association of Chartered Certified Accountants).
Responding to the draft Green Paper on Corporate Governance issued by the Department for Business, Energy and Industrial Strategy, ACCA’s head of corporate governance Jo Iwasaki said: “ACCA supports proposals to strengthen accountability and transparency and we welcome renewed Government interest in this area.
“From our work on governance and corporate culture we are convinced that the best approach to achieving these outcomes is through providing support for companies who create a workplace which integrates employees and stakeholders in a way which means everyone supports the delivery of business goals.
“Excessive focus on prescriptive legal measures on corporate governance not only risks introducing burdensome change for its own sake, but can end up masking the very problems they seek to resolve, as firms seek technical compliance rather than reform.”
Iwasaki highlights several areas where ACCA believes the Government should focus on ‘the bigger picture’ in improving organisational outcomes instead of overly-specific policy interventions:
Executive pay
  • ACCA maintains that the two fundamental issues are the link to pay & performance as well as companies not considering pay and employment conditions of employees. These issues require organisations to take a transparent approach which secures buy-in from shareholders and employees, yet there is no evidence that Government mandate proposals will provide any clear benefit to organisations which are not already well-run and accountable.
  • Government should remain alive to the way in which pay trends for UK companies. This may still intensify as global economic uncertainty on issues such as Brexit increases competition for talent.
Stakeholder voice
  • Giving employees a stake in the performance of their organisation is the first steps towards better integrated organisations. Stakeholder panels can be a way of doing this, but mandated proposals for workers on boards or similar do not guarantee diversity of representation
  • ACCA says it supports measures to increase the transparency of company pay policies through a voluntary approach, but the benefit comes from an institutional commitment to clear communication
  • The communicability of company pay policy is arguably as important as the pay policy itself – pay-ratios and performance-related rewards need to be framed as part of a clear, transparent narrative to stakeholders
Iwasaki added: “Government should not resort to a one-size-fits-all approach to corporate governance codes which are unlikely to address malpractice by a minority of large public and private companies. Corporate governance policies are not a silver bullet to solve issues such as mismanagement, a lack of financial discipline or poor decision-making.
“Indeed, many organisations including private companies have already voluntarily adopted best practice principles of corporate governance regardless of legislative requirements to do so.”