Speaking at a Business, Energy and Industrial Strategy Committee pre-appointment hearing, Sir Jan du Plessis warned that the poor state of its governance had set the tone for the whole of British business and suggested it could have contributed to audit failings.
He went on to say that the long-standing absence of a permanent chair, and the FRC’s current structure, consisting of just three Non-Executive Directors, was not a good way of running the regulator. Three more NED appointments are due to be announced imminently.
Du Plessis gave credit to FRC CEO Sir Jon Thompson for progress made at the FRC following the Kingman Review, but said that the combination of audit reform and a shake-up at the regulator could provide an opportunity for the UK to lead the way on corporate governance around the world.
“As much as we don’t like acknowledging it, when things go wrong, in the first instance it is the board of management that were wrong or had bad values or controls. We cannot just look at the audit profession and ask them to provide the answers if we are going to collectively try to avoid these scandals in the future,” du Plessis said.
Sir Jan, who was knighted for services to telecoms and business in the New Year’s Honours List, also said it was right for the FRC to step up its Audit Quality Review activity, arguing that a focus on audit quality across the largest firms was necessary to minimise the possibility of another corporate failure and a subsequent collapse to a Big Three.
Du Plessis said the FRC had evolved in a very “British manner” with much of what it did today based on informal understandings and arrangements with the biggest firms. “Unless [they] played their part in creating a different regime, the outcome could be much worse for the firms themselves,” du Plessis warned.
A former chairman of BT who has held positions on boards including Marks & Spencer, British American Tobacco and Rio Tinto, du Plessis said he had a real commitment to making the FRC a success but warned that precise objectives over the next year years would depend on the mandate received from the government in its response to the White Paper on restoring trust in audit and corporate governance, and in any legislation passed to establish the FRC’s successor, the Audit Reporting and Governance Authority (ARGA).
Du Plessis said the last thing the FRC should be doing is imposing additional avoidable costs and “oppressive obligations” on businesses, especially SMEs. However, if society was serious about avoiding future corporate scandals and collapses, it was time for a new beginning and the transformation to ARGA should be about imposing real legislative obligations, he said. It didn’t make sense as a society serious about tackling corporate failures to not authorise the FRC or ARGA through legislation to have the right and obligation to look at these situations, he added.
And with ESG considerations becoming increasingly important for both society and investors, du Plessis said he believed the FRC should legitimately play a role in developing ESG reporting and assurance standards, and encouraging companies to talk openly about their agenda.
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