Institutes » ICAEW calls for fundamental changes in corporate governance

A RADICAL SHAKE-UP of the corporate governance system is needed to help fundamentally change company behaviour and restore public confidence, according to the ICAEW.

The institute slammed the debate around corporate governance as being “too focused on boards” and “unable to address current concerns about company culture and behaviour”.

To address such issues it has proposed that an overarching framework for company behaviour is developed that involves all groups with a stake in companies.

Michael Izza, ICAEW chief executive, said: “The way we do business and the public’s expectations of business behaviour have changed. The current system of corporate governance is unable to deliver what’s required, for example in relation to issues such as diversity, tax avoidance and pay.

“We need to take a good look at what we want the purpose of business today to be and the way we encourage certain business behaviour. This has become ever more evident in the wake of the global financial crisis, and with the increased public and capital market concern about how companies are run.”

He pointed to the 20-year-old, board-centric, UK Corporate Governance Code, as a case in point as being “too narrow and prescriptive to deal effectively with business behaviour as the number and types of groups and intermediaries affecting the way companies behave continue to grow”.

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, he believes.

The ICAEW now wants to see what it dubs “an overarching framework for business behaviour” be developed that “sets out broad principles for the purpose of companies today”. These principles can then be supplemented by more detailed codes for particular groups such as the UK Corporate Governance Code and the Stewardship Code.

Izza said: “Codes are typically more effective than prescriptive rules in dealing with human behaviour so this approach has the potential to change business behaviour without creating new legislation.

“A framework could help promote consistency between group specific codes, encouraging a shared sense of accountability and would also allow us to maintain key benefits of a code-based regime, such as innovation and long-term learning.”

The proposal has been articulated in a paper Who should be covered by codes?, the fifth and final offering in an ICAEW thought leadership series on corporate governance.

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