Five questions, new challenges
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.
1. What should companies be responsible for?
In areas of corporate behaviour that concern the public, notably remuneration, government expects boards and ultimately shareholders to show sensitivity and exercise restraint, but is this fair or realistic?
2. What are the overarching principles of corporate governance?
Principles-based regulation should be intuitive. Its application should not require reference to much detail. Existing corporate governance codes should provide a complete set of high-level principles to guide the behaviour of a company board operating in today's business environment.
3. When is comply or explain the right approach?
The UK Financial Reporting Council and other groups are strong advocates of comply or explain. However, this approach is rarely applied to other areas of business regulation. Under what conditions is comply or explain the right approach to regulation? What are the implications of the application of comply or explain in other countries and to other areas of business regulation?
4. How diverse should boards be?
It is argued that the lack of diversity on boards leads to poor decision making and undermines company credibility in the eyes of stakeholders. We look at how boards should balance these considerations against other factors such as board size, cohesiveness and availability of talent. We also take into consideration what should board composition reflect.
5. Who should be covered by codes?
Traditionally directors of listed companies, parties to takeovers and institutional shareholders have followed codes that promote good governance. Auditors and consultants are also following this example. We examine whether other intermediaries should follow suit, and crucially whether the codes they use should be underpinned by law or enforced by market participants.
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