Welcome to the blog of Robert Purse
Mostly concerned with 'stuff' about Good Corporate Governance and the Management of People. Up-dated (I hope) monthly and earlier stuff will be posted on my 'Articles' page. Feel free to quote/use the material posted, but an attribution would give me a'warm glow'.
ARE LEGISLATION AND REGULATION ESSENTIAL FOR GOOD CORPORATE GOVERNANCE?
A reasonable question given the many failures in good corporate governance that we have seen, but I think that it depends upon your perspective. If you are a legislator, or regulator, then the answer is likely to be yes. Legislators and regulators have a desire/need to be seen to be doing something. This ‘something’ is invariably about compliance; it is about ticking boxes, an approach to good governance that has consistently failed.
Legislation and Regulation are external. Good corporate governance is internal.
Legislators and regulators tend to focus, not entirely exclusively I’ll admit, on financial issues and professional standards. They seem to be incapable of accepting that it is people, their values and their behaviours that deliver sustainable good governance. Iain Wright, Chairman of the UK Parliament’s Business Innovation and Skills Committee, says that “Irresponsible business behaviour and poor corporate governance ill serves workers, but it also tarnishes the reputation of business and undermines public trust in enterprise. We need to look again at the laws that govern business and how they are enforced”. I do not doubt that Mr Wright and his colleagues are well motivated, but it seems to me that he and they are missing the point. Legislators and regulators can concoct more laws and regulations with ever more draconian penalties for non-compliance, but do they really do anything to foster a culture of good corporate governance?
Ever more draconian penalties for non-compliance encourage a ‘compliance culture’, not a culture of good corporate governance.
Would the efforts of our legislators and regulators be rather better spent on educating and informing organisations on the benefits of good corporate governance? Let us consider some of the known facts about good corporate governance:
- It helps ensure that organisations have an engaged and well-motivated workforce;
- It helps to promote a positive organisation culture;
- It enhances your organisation’s reputation with customers and suppliers;
- It helps to ensure that all your people have shared values and behaviours;
- It contributes to your organisation’s longevity/sustainability; and,
- It helps to avoid/reduce a culture of blame and greed.
Good corporate governance, not legislation and regulation, that is good for organisations, good for success and good for sustainability.
Codes of Conduct
It does seem that our many and various professional institutions and ‘guardians’ of corporate governance are intent upon out-doing the legislators and regulators. Do we really need the current proliferation of codes of conduct? Many of these codes are specific to particular professions e.g. accountancy, medicine, nursing and teaching; they are largely concerned with the professional standards of individuals in their respective professions. Important as they doubtless are, they are not directly concerned with the implementation and promotion of good corporate governance.
‘Professional’ codes aside, we now seem to be in era where every sector feels the need to produce its own sector-specific code of corporate governance. My first question would be why is this happening? There is research evidence to suggest that this proliferation is both confusing and unhelpful. If we accept that the core principles of good corporate governance are universal, I believe that they are, then surely what we need is a smaller number of codes that embrace those universal principles. To be truly effective, such codes need to be holistic and inclusive.
Codes of Governance need to be holistic and inclusive.
Far too many codes of conduct/governance are restricted to the financial and professional aspects of corporate governance with scant regard to the critical importance of an organisation’s culture and its people in the delivery of good corporate governance. In the final analysis, it is an organisation’s people that deliver and maintain good corporate governance.
People, not legislation and regulations deliver good corporate governance.
Far too many Codes tend to be too restrictive in their scope. The UK’s ‘Combined Code’ is a good example of this tendency; its scope is limited to ‘listed’ companies and I’m not convinced that the FRC is the appropriate body to advise on corporate governance in the UK. The FRC, understandably perhaps, tends to focus on the financial aspects of corporate governance and compliance and regulation. Compliance and regulation tend to encourage a short-term, tick-box, approach to corporate governance; I suggest that ensuring good corporate governance requires a long-term, strategic, approach. I would like to see the UK’s IoD taking a lead role, much as the IoD of Southern Africa has. The IoD could work with the likes of the CIPD, CMI and ICAEW to develop a far more holistic and inclusive ‘Code’.
If we accept the universality of the principles of good corporate governance then those principles should be universally applicable to all sectors (Charities, not for profit, private – listed & unlisted, and public) and all organisations in those sectors. I think that there is a strong case for considering King III as the way forward in matters pertaining to good corporate governance. King III, which is both holistic and inclusive, is not prescriptive.
A FEW FINAL REMARKS:
- Legislation and regulation may provide a broad framework for good governance; they do not provide the solution;
- Legislators and regulators should focus less on compliance and more on encouraging a culture of good corporate governance;
- Codes of Conduct need to be more holistic and inclusive;
- Good governance is good for organisations and the business that they are engaged in; and,
- People, not legislation regulations processes and systems, deliver and sustain good corporate governance.
Posted: September 2016
©Robert Purse 2016