by Sean Kearns, Editor-in-Chief, Longitude
Wirecard, Carillion, BHS, Patisserie Valerie. The list of large-scale corporate governance failures from the past few years is enough to keep any board member up at night.
The collapse of these companies exposed serious flaws in audit processes and internal controls, and prompted a series of proposed reforms by UK authorities.
There might not yet be agreement on the detail of the plans, but there is consensus on the need for wholesale change. Calls for a rethink of the rules aren’t limited to the UK – there are also similar concerns over the stewardship code in Japan.
But some commentators, including the FT’s editorial board, are concerned that the UK proposals may not be far-reaching enough. Others, including Better Business Act, are calling for a change to UK company law so that “profit is not pursued at the expense of workers, communities and the environment”.
The job just got tougher
The impact of the Covid-19 pandemic has forced companies to address their governance standards — particularly their responsibility to a broader range of stakeholders.
“The shareholder-centric model appears to be giving way to a richer model of governance that puts the health and resilience of the company at its centre,” said Lynn Paine, senior associate dean for international development at Harvard Business School in a recent piece.
This changing social and business context is reflected strongly in how FT subscribers see the board’s evolving role. Close to three-quarters (72 per cent) say that board members require a much deeper knowledge of company operations than ever before.
To better mitigate future risks and potential breaches of regulations, and stop their businesses joining the sorry list of failures, board members need better intelligence.
This is a personal challenge for directors
For board directors with a growing burden of responsibilities, changes to corporate governance rules are a high priority and a personal development challenge.
Recent research among FT subscribers who currently sit on boards found that for one-fifth of respondents “changes to corporate governance rules and regulation” is one of the top three strategic challenges.
What is the best way for directors to update their knowledge and understanding of changing rules and responsibilities? In the research, a third say that peer-to-peer networks are extremely valuable in helping them to fulfil their overall board responsibilities.
But when it comes directly to corporate governance they are not equipped, according to the latest Asia Pacific Board Director Barometer Report from Tricor Group and Financial Times Board Director Programme. In the research, 94 per cent of directors globally said they need more corporate governance training, and just 58 per cent are receiving it.
New ways for directors to prepare
This need for better guidance, alongside the broader remit of boards, explains why the IoD launched its Centre for Corporate Governance in 2020. It provides directors with events and perspectives on corporate governance, company stewardship and ESG, and this kind of community can help directors feel better prepared.
“Directorship is becoming a profession,” says Ruth Medd, chair of Women on Boards. “Your challenge is to build up your knowledge and your contacts. There are things that you should do each year: you need to understand changes in director’s duties, in financial statements, in risk management. There is no substitute for professional development.”