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Dialogue in corporate governance

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of a company.

Latest publication: Connect and reflect

ICAEW's new series challenges companies to tackle controversial issues and demonstrate a positive corporate culture. In the first paper we outline our position and invite representatives from across business and society to contribute to the discussion.

What it’s all about?

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of a company.

Does corporate governance matter?

Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.
Many academic studies conclude that well governed companies perform better in commercial terms.

ICAEW’s role in corporate governance

Since the establishment of the Cadbury Committee in 1991, ICAEW has played a significant role in the development of corporate governance in the UK.

Through reporting and auditing, chartered accountants support transparency and the flow of reliable information between management, boards, shareholders, regulators and other stakeholders. They therefore play a key role in facilitating the direction, control and oversight of companies.

The Turnbull Guidance on Internal Control was published by ICAEW in 1999 and was approved by the SEC as a framework for compliance with the section 404 of the Sarbanes-Oxley Act.

What we’re thinking about

The Dialogue in corporate governance initiative aims to facilitate better understanding of challenges to existing corporate governance frameworks and to identify new opportunities in increasingly international capital markets.

Our thought leadership in corporate governance aims to facilitate better understanding of pressure and opportunities that arise in increasingly international capital markets.

It encourages dialogue around business, investment accountancy and policy issues relating to corporate governance through publications, roundtables and face-to-face meetings.  The aim is to reinvigorate the study of corporate governance, moving it on from introspective debate about procedure and regulatory compliance.

ICAEW thought leadership in corporate governance intends to:

  • challenge commonly held assumptions
  • identify fundamental questions
  • set challenges for future research

The ICAEW thought leadership 'Dialogue in Corporate Governance' presents five questions arising from changes in capital markets and how they affect the foundations of existing corporate governance frameworks. We intend to explore these questions in a series of bite-size thought leadership projects. While accepting that there are no easy solutions, we hope to bring greater clarity to people’s thinking through dialogue with a range of interested parties and stakeholders including boards, investors, and academics.

Five questions

  1. What should companies, boards and shareholders be responsible for?
  2. What are the overarching principles of corporate governance?
  3. When is comply or explain the right approach?
  4. How diverse should boards be?
  5. Who should be covered by codes?

A number of major changes have taken place in capital markets over recent years. These include: growing importance of non-equity financial instruments; new types of equity owners; changes in the services offered by, and the use of, intermediaries including sponsors, brokers, proxy and legal advisors and credit rating agencies; and pressures to harmonise internationally diverse practices in corporate governance. Increasingly, a number of major business controversies are discussed as if they are principally issues of corporate governance: for example, state bail-outs of failing financial institutions during the economic crisis, public outcry over executive remuneration, and the lack of diversity on boards.

These changes and controversies present significant challenges to existing models of corporate governance built around ‘agency theory’ which sees boards of listed companies acting as agents of absent equity owners. Risks arise because board members’ interests may differ from owners’ (the agency problem) and because boards have more information about a company than owners (information asymmetry). Many existing corporate governance models attempt to show how the agency problem and information asymmetry may be effectively addressed in the long term interests of shareholders who ultimately own the company.

The changing nature of capital markets means that they are poorly served with existing models of corporate governance. Rather than treat current controversies as topical and fleeting matters, we intend to explore them as symptoms of misalignment between today’s markets and corporate governance frameworks. We invite anyone interested in corporate governance to join our 'Dialogue in corporate governance'.

If you would like to contribute to the debate, please contact Elizabeth Richards.

What we've done

As well as our Dialogue in Corporate Governance these publications are also available:  

Beyond the myth of Anglo-American corporate governance

Contrasting US and UK corporate governance systems and to help promote understanding of pressures and opportunities that arise in increasingly international capital markets. Other topical publications:

In addition to our publications, you can access ICAEW’s other activities in corporate governance from the links below.

Corporate Governance Briefing

Updates on UK, EU and other developments. This paper provides a brief update on governance developments since the last Corporate Governance Committee meeting.