IoD Directors' Briefing Your monthly update on directorship and governance
Last month, the government published its long-awaited white paper on audit reform and corporate governance titled, ‘Restoring trust in audit and corporate governance’. The paper represents the government’s response to the Brydon, Competition and Markets Authority, and Kingman reviews, each of which addressed different aspects of the audit industry, corporate governance, and the role of the Financial Reporting Council (FRC). Although the proposals largely relate to larger companies (‘Public Interest Entities’), key issues for directors to be aware of include:
- New attestation and reporting requirements for internal controls, dividend and capital maintenance decisions and resilience planning;
- The transformation of the FRC into the Audit, Reporting, and Governance Authority (ARGA) alongside new powers for it to hold to account directors for breaches of their duties relating to corporate reporting and audit;
- Changing the definition of a Public Interest Entity away from its current focus on predominantly publicly listed companies to encompass a wider range of entities, including large private companies.
Step two of the Government’s roadmap out of England’s third lockdown proceeded as planned on Monday this week (although other UK nations are following a slightly different timetable). Business sectors such as non-essential retail, personal care premises, indoor leisure facilities, self-contained accommodation, outdoor hospitality venues, and the majority of outdoor settings reopened. This comes on the heels of an increased confidence in the economy according to the IoD’s latest Confidence Tracker results. This found that members’ business optimism is at its highest level since the 2019 general election. The full results can be found here.
Following last month’s Governance Perspective article on the Better Business Act campaign, the IoD has announced its public support for the broad objectives of the campaign. Although a reform of section 172 of the Companies Act would be a significant change in the focus of company law, it is aligned with developments in corporate governance which we support – namely, a growing emphasis on ESG factors in corporate decision-making and the importance of a broader stakeholder orientation.
In this month’s Governance Perspective, Jaya Gupta, Sarah Thomas, and Richard McGarry, Partners and Managing Associate at the law firm Addleshaw Goddard, discuss some of the key potential changes in the government’s white paper on audit reform and corporate governance. In their article, they set out the types of entities that are likely to be within the scope of the revised definition of a Public Interest Entity (PIE), and delve into proposals for director accountability for internal controls, new director civil liability, and regulatory powers to address serious concerns.
We welcome the contributions of IoD members to write their own Governance Perspective for a future edition of Directors’ Briefing.
- Governance Perspective
- Companies and Investors
- Charities, Public Sector and Not-For-Profit
- Policy and Regulation
- Audit and Accounting
- ESG Issues
- Thought leadership, opinion and research
- IoD activities and podcasts
- Member comment
- Responding to the Coronavirus Crisis
- Resources for Directors
Governance Perspective: UK Audit and Corporate Governance Reform – shaping the debate by Jaya Gupta, Sarah Thomas, and Richard McGarry, Partners and Managing Associate at the law firm Addleshaw Goddard
Companies and Investors
13.04.2021 | Leon Black attended Apollo Global meeting days after resignation
Leon Black, the former CEO and chair of private equity firm Apollo Global Management, quietly attended a meeting of top executives at the company days after he resigned from all his positions. The billionaire had resigned on 21 March after an outcry over his ties to the disgraced financier Jeffrey Epstein, but remains the company’s single largest shareholder. [Financial Times]
12.04.2021 | Beijing hints at truce in war on Jack Ma’s business empire
China’s central bank ordered fintech giant Ant Group, founded by billionaire Jack Ma, to restructure as a financial holding company. Under the terms of the settlement, the company will improve its corporate governance and reduce linkages between its consumer lending and payments businesses. [CNBC]
12.04.2021 | David Cameron to face government investigation into Greensill lobbying
The government has announced a review into former prime minister David Cameron’s efforts to lobby ministers on behalf of the collapsed finance firm Greensill Capital. In his first statement on the controversy on Sunday, Cameron denied any wrongdoing, but accepted that his informal communication efforts to lobby senior government ministers, such as texting the chancellor Rishi Sunak, left room for misinterpretation. [BBC]
07.04.2021 | Heineken investors urged to revolt over former chief’s pay-out
The influential proxy adviser firm Glass Lewis has recommended that shareholders vote against Heineken’s remuneration report and two other proposals at its AGM later this month. The world’s second largest brewer’s former CEO, Jean-François van Boxmeer, received a €5.5m severance payment in violation of the Dutch governance code, which stipulates that severance payments must be equivalent to one year’s salary. [Reuters]
31.03.2021 | Deliveroo tumbles 26% in London debut
The newly listed food delivery company Deliveroo suffered the worst first-day performance in the London Stock Exchange’s history as its shares plunged by 26%. Investors and analysts cited its dual-class share structure, overambitious valuation, and ethical and financial issues surrounding the employment status of its 100,000 riders following the February Supreme Court ruling against Uber among the concerns that dampened enthusiasm around the float. [The Independent]
30.03.2021 | Oxford Nanopore to float on London Stock Exchange
Oxford Nanopore, a start-up founded by three Oxford University scientists, has set out plans to float on the London Stock Exchange later this year. The life sciences company’s fortunes were transformed by COVID-19 as the government awarded it contracts worth £144m to provide the NHS DNA sequencing technology to monitor and detect COVID-19. [Evening Standard]
18.03.2021 | Toshiba investors secure landmark win in clash with management
Toshiba’s two largest investors succeeded in passing a shareholder proposal at an extraordinary general meeting (EGM), a rarity in Japan which has the potential to set a landmark precedent for shareholder rights in the country. The proposal called for an independent investigation into alleged improper circumstances surrounding Toshiba’s previous AGM, and its passage came despite strenuous efforts by Toshiba’s management to thwart its success. [Japan Times]
Charities, Public Sector and Not for Profit
14.04.2021 | Charity Commission updates guidance on AGMs and annual reports
The Charity Commission has updated its guidance on AGMs during COVID-19 and is continuing to allow late delivery of annual reports. The changes include allowing charities that are unable to hold virtual meetings or socially distanced face-to-face meetings to cancel or postpone AGMs or other important meetings. [Gov.uk]
31.03.2021 | Charity Commission opens statutory inquiry into The Aspinall Foundation
The Charity Commission has opened a statutory inquiry into The Aspinall Foundation over serious concerns about the charity’s governance and financial management. The inquiry will examine the administration, governance, and management of the charity by its trustees, with a particular focus on how conflicts of interests have been managed, alongside other areas of interest. [Gov.uk]
31.03.2021 | Charity Commission opens statutory inquiry into The Howletts Wild Animal Trust
The Charity Commission has opened a statutory inquiry into The Howletts Wild Animal Trust over serious concerns about the charity’s governance and financial management. The inquiry will examine whether or not its trustees have complied with and fulfilled their duties and responsibilities under charity law alongside other areas of interest. [Gov.uk]
Policy and Regulation
31.03.2021 | Hong Kong set to allow corporate directors to obscure their identity
Hong Kong’s government has set out proposals to allow company directors to obscure their home addresses, passport, or identification numbers on public registers. Corporate governance experts have stated that the new rules risk facilitating fraud and undermining Hong Kong’s status as a transparent financial hub. [Bloomberg]
18.03.2021 | UK companies face curbs on dividend and bonus payments
The government has published its long-awaited proposals on reforms to both the audit industry and the UK’s corporate governance framework. One of the consultation document’s key proposals is that large companies with insufficient cash reserves will be barred from paying shareholder dividends and executive bonuses. [Gov.uk]
Audit and Accounting
26.03.2021 | Trust in UK corporate sector is low, admits chair of accountancy and audit watchdog
The Financial Reporting Council’s (FRC) interim chair, Keith Skeoch, has said in his first interview with the Financial Times that the government’s recently published reforms to the UK’s audit and corporate governance framework were needed to ‘rebuild trust in the corporate sector’. Skeoch warned British boardrooms to expect that the FRC would use its proposed new powers to push for corporate governance change in the UK. [Financial Times]
20.03.2021 | UK audit reforms fail to address the real problems behind scandals
In an FT op-ed, Karthik Ramanna, professor of business and public policy at Oxford University’s Blavatnik School of Government, argues that the government’s recently published white paper on audit and corporate governance fails to address the real problems behinds recently business scandals, which include both bad rules and unchallenging company and boardroom cultures. [Financial Times]
18.03.2021 | Long road to audit reform is littered with questions
In an FT op-ed, journalist Helen Thomas assesses the prospects of the government’s recently published white paper on audit and corporate governance reform. [Financial Times]
12.04.2021 | Kirin’s flawed exit from Myanmar tests the bounds of ESG
In an FT op-ed, journalist Leo Lewis analyses the departure of Japanese brewer Kirin from Myanmar and its wider implications for the integrity of company ESG policies. [Financial Times]
07.04.2021 | UK plc fails to report adequately on climate risks
Fewer than 50 UK publicly listed companies are comprehensively reporting on climate risks and setting targets in line with the Task Force on Climate-related Financial Disclosures, according to a report by FTI Consulting and Sentieo, a financial and corporate research company. 68 FTSE100 businesses made a reference to the TCFD, but FTSE250 and smaller companies were far less likely to mention the framework. [FTI]
05.04.2021 | US investors set to test companies’ handling of coronavirus
US companies are facing the largest number of demands from investors to address environmental and social concerns in four years. Investors have submitted 484 proposals on environmental or social issues ahead of AGM meetings later this year, according to the investor advisory business ISS. [Financial Times]
30.03.2021 | Green investing ‘is definitely not going to work’, says ex-BlackRock executive
In an interview with the Guardian, Tariq Fancy, a former chief investment officer for sustainable investment at BlackRock, said that he believes the climate crisis can never be solved by today’s free markets. Fancy argues that government intervention is required to make it more expensive to pollute in order to change market incentives. [The Guardian]
24.03.2021 | Big banks’ trillion-dollar finance for fossil fuels ‘shocking’, says report
The world’s 60 biggest banks have provided $3.8tn of financing for fossil fuel companies since the Paris climate agreement in 2015, according to a report by an NGO coalition. The 12th edition of the Banking on Climate Chaos report by the Rainforest Action Network found that fossil fuel financing was higher in 2020 than in 2016, and that existing climate policy commitments by the 60 banks reviewed were ‘out of alignment’ with the goals of the Paris agreement. [RAN]
22.03.2021 | Powerful investor group finds net zero pledges distant and hollow
The influential Climate Action 100+ organisation has found that only a handful of the 159 companies responsible for more than 80% of global industrial emissions have set adequate targets. In its latest benchmark analysis, the investor group, whose members collectively manage $54tn in assets, found that almost all the pledges set are both distant and hollow. [Climate Action 100]
Thought leadership, opinion and research
12.04.2021 | Board and governance strategies in the UK, US, and Germany
In this Harvard blog, professors Klaus Hopt and Patrick Leyens summarise their recent research paper on how board and governance strategies differ between the UK, US, and Germany. Hopt and Leyens argue that a board model only provides a basic structure that serves to enable more specific corporate governance strategies. [Harvard Edu]
07.04.2021 | 2020 in hindsight: Key considerations for directors in 2021
The international law firm Arnold & Porter has published an advisory note on some key corporate governance areas that directors should consider in 2021. These include COVID-19 performance, risk oversight, ESG, a reassessment of business strategies, renewed shareholder engagement, and strengthening boards. [Arnold Porter]
04.04.2021 | Stakeholder capitalism must find ways to hold management to account
In an FT op-ed, journalist John Plender argues that the prevailing commitment to short-termist shareholder value has undermined corporate resilience, and that stakeholder capitalism must find ways to hold management to account. [Financial Times]
IoD activities and podcasts
13.04.2021 | Corporate Governance Virtual Policy Breakfast
The IoD recently held a Corporate Governance Virtual Policy Breakfast event as part of our engagement efforts around the government’s recent white paper on audit reform and corporate governance. We convened a diverse range of experts and stakeholders to discuss the consultation document and its implications, a readout of which is here.
01.04.2021 | Business leaders’ confidence rises with economy set to reopen
In the IoD’s latest Confidence Tracker, we found that directors’ optimism in the economy is at its highest level since the 2019 general election. This comes as the government continues to roll out its COVID-19 roadmap and ease business restrictions across the country.
31.03.2021 | Business Barometer Breakfast Podcast
The IoD’s Business Barometer Breakfasts tackle key questions raised by members on the Policy Voice survey. In this episode, Tej Parikh, Chief Economist, and Joe Fitzsimons, Senior Policy Advisor, answer queries from business leaders ranging from the green economy, to Brexit and the return to work.
29.03.2021 | Directors’ Briefing Podcast
On 18 March, the government launched a long-awaited wide-ranging consultation document titled, ‘Restoring trust in audit and corporate governance’. In this IoD podcast, Dr. Roger Barker (Director of Policy and Corporate Governance), Deborah Morton-Dare (IoD Finance and Governance Tutor), and Steve Giles (IoD Finance and Governance Tutor) explore its key points and consider if it can be viewed as a ‘game changer’ for company directors and auditors.
28.03.2021 | Third more businesses more vulnerable to cyber-crime than pre-pandemic
Recent IoD research shows that a third of businesses are feeling more vulnerable to cyber-crime now compared with before the pandemic. This finding follows a previous IoD poll that showed that nearly 75% of businesses will maintain home-working arrangements after the pandemic.
25.03.2021 | IoD Chief Economist Insights on Q1 2021
Our Chief Economist Tej Parikh recently shared his insights on the UK’s economic outlook in the first quarter of the year. He notes that it has been a bumpy quarter for business given the implementation of the UK’s Brexit deal as well as the COVID-19 lockdown, but concludes that there are reasons for cautious optimism following the Budget and success of the UK’s vaccination programme.
Marcus Johnson, Director of Kirly Group Holdings Ltd, submitted a response to our March Governance Perspective on the topic of the Better Business Act (BBA). He argues that while the BBA’s objectives are desirable, there should be a clear division between the distinct roles of government and businesses.
Responding to the Coronavirus Crisis
The IoD’s Coronavirus Hub is being updated frequently.
New resources include:
- Directors and Corporate Governance Resources
- Coronavirus Business Support – UK Government website
- Guidance for Employees, Employers and Businesses
- How to Access Government Financial Support
- Coronavirus Toolkit from BEIS
Resources for Directors
UK Corporate Governance Code (Financial Reporting Council)
The leading source of governance principles and recommendations for companies with a premium listing on the London Stock Exchange.
Wates Principles (Financial Reporting Council)
Key governance principles for large private companies.
Corporate governance: Board responsibilities at major banks (Bank of England)
Supervisory guidance from the Prudential Regulation Authority for the boards of regulated firms.
The European Confederation of Directors Associations (ecoDa)
The umbrella body for directors associations in Europe.
The Global Network of Director Institutes (GNDI)
The umbrella body for directors associations around the world.