Twenty-five years of corporate governance reforms in the UK have tended to create a compliance culture on company boards with non-executive directors more focused on risk mitigation and monitoring than supporting management to boost their businesses according to a report from the think tank, Tomorrow’s Company.
Entitled NEDs From Monitors to Partners, the report argues that some companies are becoming overburdened by the compliance demands and this has contributed to a risk-averse approach by many companies with record high dividends and low investment. The report said that the average board packs are now over 250 pages and annual reports have doubled in length in the past 25 years.
The report was written in consultation with senior UK chairs and directors and suggests that companies, their investors and the government have a role in countering the demands of governance compliance. The report said that the chair had a role in setting the tone for a company board and showing how his or her’s board should be different.
Tomorrow’s Company also suggested that company secretaries could help manage the flow of information and reduce the size of board packs while NEDs can focus on supporting and advising executives. Executives, that investors meanwhile, could reciprocate this by bringing issues to be discussed, rather than solutions to be approved, the report suggests.
Meanwhile the investors needed to shift the focus from quarterly results to stewardship, while taking the time to move away from a tick-box assessment of boards. Government could shift the emphasis from preventing scandals to encouraging long-term investment, sustainability and a greater diversity in governance structures.
Laurie Fitzjohn-Sykes, Director of Research at Tomorrow’s Company and author of the report said: “Despite continual reforms and refinements, there is limited evidence that ‘good governance’ is improving outcomes for shareholders and society. The solution to low public trust and productivity is not yet more governance adding to the caution and compliance burden of boards, but the opposite – encouraging companies to be purpose-driven by investing in the long term.”
Last Updated: 30 June 2017