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It’s an ill wind that blows no good for the EU

October 18, 2018

Rovinj

There’s an old Chinese saying that “when the wind of change blows, some build walls whilst others build windmills” – well there’s little evidence of either in the corridors of power in the EU according to Udo Baader, founder and head of German bank, Baader Bank, speaking at the Zagreb Stock Exchange Conference in Rovinj, Croatia, today.

He reckons that 2019 might blow up a storm as the bailout chickens come home to roost.

Just when the Eurocrats in Brussels thought that the financial crisis in the EU was over it looks like that is far from being the case.

Over the last 10 years, since the financial meltdown in 2008, the EU has poured €600 billion into the money pit that is Portugal, Ireland, Greece and Spain (PIGS) plus Cyprus – €400 billion going to Greece alone in 3 bailouts – effectively taking EU taxpayer’s hard-earned cash and giving it directly to the Banks by way of the Asset Purchase Program (APP), otherwise known as Quantitative Easing (QE).

Whilst there has been a general reduction in unemployment and an increase in growth in these countries and some Banks, particularly in the US, have done very well out of this scheme, other Banks, especially those in Greece have fared less well – with some of them having over 50% of bad loans on their books, guaranteed by government bonds which are either already high risk or are about to be re-classified so in the coming weeks.

And it’s not just the PIGS + Cyprus that are affected, Italian Banks are also sitting on high-risk collateral and the once mighty Deutsche Bank has lost 80% of its share value over the last decade.

With the possibility of further political instability in Germany following the next round of elections coupled with the perilous situation in Greece, 2019 is likely to prove a very bumpy ride for EU finances.

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UK Corporate Governance Code 2018

October 18, 2018

A new version of the UK Corporate Governance Code was published in July 2018 and takes effect from 1 January 2019.

Of the 2,600 companies listed on the London Stock Exchange, only 1,200 are listed on the Main Market and of those around 850 have a Premium Listing and are therefore required to report on how they have applied the Code – though it is recognised as a best-practice guide to Corporate Governance which sets the standards of board leadership and effectiveness, remuneration, accountability and relations with shareholders and stakeholders.

The Code, which has developed over the last 25 years since the publication of the Cadbury Report, contains broad principles and more specific provisions that Premium Listed companies are required to report on as part of their annual report and accounts. They must state how they have applied the main principles of the Code and either confirm that they have complied with the Code’s provisions or provide an explanation where they have not.

Roughly half the countries in the world which have some form of Corporate Governance regulation have adopted a code approach, similar to the UK, whilst the other half have opted for legislation. The important difference between the two approaches is that with a code, it is the shareholders who are expected to exert pressure on the directors to comply rather than the courts.

Placing the onus on shareholders to ensure that their directors follow the code is a much more flexible solution than legislation and means that the code can be regularly updated to reflect changing needs in Corporate Governance. Unfortunately, the dramatic shift in share ownership from predominately private individuals to financial institutions over the last 40 years has resulted in less pressure on directors to comply with the code rather than more.

To combat this perceived lack of interest of institutional investors in the way the businesses they are investing in are run, the UK Stewardship Code was introduced in 2010 – though this has turned out to be relatively toothless and politicians will be looking for other ways to further influence the standards of Corporate Governance in the boardrooms of the major UK companies.

Both codes are ‘owned’ by the Financial Reporting Council (FRC) which consults widely before making revisions to the codes – in the case of the latest revision to the code, consultation started in February 2017 and concluded a year later in 2018. The transparency of this process has been questioned with some commentators saying that the resultant revisions bear little resemblance to the responses submitted during the consultation.

The new shorter and sharper Code seeks to re-emphasise the relationships between companies and their shareholders and stakeholders, which are enshrined in the 2006 Companies Act, and their importance for the long-term sustainable growth of the UK economy.

The main changes to the code include:

  • a new provision to enable greater board engagement with the workforce to understand their views. The Code asks boards to describe how they have considered the interests of stakeholders (that is anyone with a legitimate interest in the company including employees, customers, suppliers and the local community) when performing their duty under Section 172 of the 2006 Companies Act;
  • a requirement for Boards to create a culture which aligns company values with strategy and to assess how they preserve value over the long-term;
  • an assurance that boards:
    • have the right mix of skills and experience;
    • encourage constructive challenge and;
    • promote diversity;
  • an emphasis on the need to refresh boards and undertake proper succession planning;
  • consideration of the appropriateness of Chairs remaining in post beyond nine years;
  • strengthening the role of the nomination committee in succession planning and establishing and maintaining a diverse board;
  • conducting regular external board evaluations – Nomination committee reports should include details of the amount of contact the external board evaluator has had with the board and individual directors;
  • an emphasis on the need for remuneration committees to take into account workforce remuneration and related policies when setting director remuneration including performance-related pay to address public concerns over excessive executive remuneration.

FRC Chairman Sir Win Bischoff said about the new code:

“Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital. To make sure the UK moves with the times, the new Code considers economic and social issues and will help to guide the long-term success of UK businesses.

This new Code, in its new shorter and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”

Business Secretary Greg Clark said:

“Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. It is right that we keep under review and update our corporate governance code to ensure the highest standards.

“That is why I supported the FRC in deciding to update their Corporate Governance Code, and I am pleased to see the revised Code.

“These changes will drive improvements in how boardrooms engage with employees, customers and suppliers as well as shareholders, delivering better business performance and public confidence in the way businesses are run. They will help the UK remain the best place in the world to work, invest and do business.”

Concern about the new Code was expressed by James Jarvis, Corporate Governance Analyst at the Institute of Directors, the Professional body that aims to improve standards of directorship:

“While the shorter and sharper nature of the code is welcome, along with the increased emphasis on the importance of a wide range of stakeholders, the IoD does have concerns over the relegation of professional development to the Guidance for Board Effectiveness. As we highlighted during the consultation period, the role of the modern director is increasingly complex and specialised, and there is an ongoing need for these individuals to take stock of their competencies. By removing reference to the professional development of directors from the Code and only mentioning it peripherally in the Guidance, the FRC risks indicating to directors that it is not important.”

At the same time as the FRC were producing the new code, they themselves were the subject of a review into their own effectiveness. This review, led by Sir John Kingman, the chairman of Legal & General Plc, which is the largest institutional investor in the UK, was set up in April 2018 by the UK government to assess the FRC’s governance, impact and powers to help ensure it is fit for the future.

The outcome of the review, which is due to be completed by the end of 2018, is aimed to make the FRC the “best in class for corporate governance and transparency, while helping it to fulfil its role of safeguarding the UK’s leading business environment.”

The FRC has two big jobs to do – in addition to being the guardians of Corporate Governance, the FRC is also the UK’s accounting and audit watchdog. Some argue that these tasks are too big to be undertaken by one body, whilst others ask if there is a conflict of interest between the roles? – the IoD has called for the creation of a new body to be responsible for promoting higher standards of Corporate Governance to leave the FRC free to concentrate on its core task of improving company audits.

Given the question marks hanging over auditors in the light of recent high-profile corporate failures such as Carillion there is an argument that Corporate Governance is the thing that the FRC does well and it is their perceived failure to improve auditing and accounting standards that needs to be addressed.

The IoD’s rationale for setting up an independent body to oversee the UK Corporate Governance and Stewardship codes is that the shaping of voluntary best practice for boards of directors and the setting and enforcement of accounting standards are very different activities

Dr Roger Barker, Head of Corporate Governance at the IOD said:

“Corporate governance has been swallowed up within a regulator that now urgently needs to focus its energies on improving the legitimacy of statutory audit. The FRC has for many years done a good job acting as the keeper of the UK’s corporate governance code, but we feel its centralised decision-making structure is not conducive to the differing regulatory approaches needed for governance and stewardship on the one hand, and statutory audit on the other. There must be a clear distinction between being robust on audit quality, while continuing to nurture the UK’s much-admired principles-based corporate governance regime”

The IoD is not the only Professional body with an interest in governance. The Institute of Chartered Secretaries and Administrators (ICSA), otherwise known as the Governance Institute – the professional body for governance has also made its views about the FRC known in its response to the Kingman Review call for evidence.

Unlike the IoD, the ICSA is firmly opposed to the suggestion that responsibility for Corporate Governance should pass from the FRC to another regulator given the expertise that has been developed by the FRC.

The ICSA’s concern with the implementation of both the UK Corporate Governance Code and the Stewardship Code is the lack of sanctioning powers open to the FRC to enforce them. This is a view shared by Labour MP Frank Field, co-author of the 60-page report into the BHS collapse by the parliamentary business, innovation and skills select committee with particular reference to Sir Philip Green who fails all but one of the section 172 tests but has not been prosecuted for failing to obey the 2006 Companies Act.

The UK Shareholders Association (UKSA) and ShareSoc have jointly asked for firmer and faster action to be taken against those who violate the integrity of reporting standards. They say that the general perception is that “in practically every financial scandal or financial crisis, the FRC seems to have taken far too long to decide and too often has concluded that nothing has gone seriously wrong”.

Partly this lack of bite for the FRC lies with its position within the regulatory hierarchy as a “Council” it has much blunter teeth than the Financial Conduct Authority (FCA), which might have more success in enforcement if it was given the powers to do so. The Companies Act has been law since 2006 but we have yet to see any meaningful prosecutions for failure to comply with section 172 and only now in 2018 is the new Code asking boards to specifically say how they comply.

With so many high-profile corporate failures being due to an inability to respond to reputational or environmental risks rather than financial ones, does it make sense for the Corporate Governance regulatory body to still have the word “Finance” in its title?

It will be interesting to see what the outcomes of the Kingman review are when the findings are reported at the end of the year.

One thing is for certain, regardless of who ‘owns’ the Corporate Governance and Stewardship Codes in the future and which political party is in power, the pressures on business leaders to improve the way they run their companies whilst avoiding scandals of corporate failures and excessive executive pay will continue to rise.

The 2018 UK Corporate Governance Code can be downloaded here

 


How to become a Non-Executive Director – London 23 October 2018

October 18, 2018

Find out how you can obtain a Non-Executive Director position by booking a place on this interactive 1-day course.

non-executive director“A well structured and presented introduction to the responsibilities, challenges and attributes required of being a NED. It was thought-provoking. I have referred back to my copious comments in the comprehensive slide hand outs many times already”

Simon C Jones, Interim Transformation Leader and Hidden Value Discoverer

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (https://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Institute of Directors
116 Pall Mall
London
SW1Y 5ED 

Price
£330.00 (ex VAT)

Payment with Booking Price

£300.00 (ex VAT)

Partner Price*
£280.00 (ex VAT)

Book Now
To see course dates and to book your place now follow this link:

Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning


*Discounts on Excellencia course fees are available for:

 


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