Speaking on a panel about ‘when governance becomes real’, Simon Laffin, chairman of Flybe and the former CFO of Safeway, echoed the idea that rules around governance had become overly prescriptive and suggested that “rules are the antithesis of good performance”.
The ICAEW and others argue that changes in those who play key roles in capital markets are altering the dynamics of the governance of company behaviour, and are potentially leading to the development of an increasingly complex and inconsistent system of codes, rules and regulations. The public has subsequently lost trust in business and believe the system is run by a network of City insiders. One only has to look at the connections that exist between company boards and within the watchdogs tasked to regulate them to see the truth of that belief.
While the public may yearn for a more sustainable form of capitalism, institutional investors remain more interested in the health of a company’s balance sheet than the health of its ethical soul. When asked whether they look at corporate culture when making nvestment decisions, one investor on a panel about what they look for in a CFO suggested culture will always come second to a healthy P&L.
The FRC has already urged greater commitment from investors to its stewardship code, and expressed disappointment that deeper engagement has failed to take place with sufficient quality. Improvements are happening, with greater discussion over how financial reports are structured and written.
Until investors truly champion making long term plays over more than just 18 months, a cultural revolution among UK boards and regulators remains will gain little traction. An investigation into the cultural failings at an individual level among Britain’s banks would be a good place to start.