Oral statement to Parliament
ICSA Transparency in Governance Awards
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Introduction I am delighted to join you for the Transparency in Governance Awards this evening. The UK has been a pioneer in developing…
I am delighted to join you for the Transparency in Governance Awards this evening.
The UK has been a pioneer in developing high standards of corporate governance. As a result, our companies are among the very best when it comes to transparency and effective disclosure - as the quality of tonight’s finalists demonstrates.
So I would like to thank the Institute of Chartered Secretaries and Administrators, together with Hermes, for organising these awards. My thanks also to Roger Carr, for doing an excellent job as chair of the judging panel.
It is important to recognise the world-class corporate governance that many British companies achieve - and that is something we don’t do nearly enough.
These awards are a good opportunity to correct that imbalance. And I think they also act as a catalyst for improvement, encouraging other companies to match the reporting standards of the very best.
This is an excellent way of giving companies a powerful incentive to boost their disclosure and governance arrangements.
It’s essential we do that, because transparency is the bedrock of a vibrant and successful corporate sector. And of course company secretaries have a crucial role to play - they are the lynchpin of well-run companies.
Transparency reinforces accountability and builds trust. This in turn underpins effective business strategy and long-term performance, so it’s vital that firms get it right.
Good governance must be at the heart of successful capital markets, which work both for companies who need to invest and investors looking for solid and sustainable returns.
That is exactly what the Coalition government wants to promote, as we continue our work strengthening the UK corporate governance regime.
That’s why we put shareholder empowerment - an important principle - at the heart of our consultation on narrative reporting, which closed recently.
Our aim is to equip shareholders with the information they need to make well-informed decisions. But that does not necessarily mean adding to the existing regulatory burden.
In fact, many people tell me there is currently too much reporting - and the problem is that shareholders cannot see the wood for the trees. So we will look at how to help investors and other stakeholders find relevant information quickly and easily.
There are some other clear themes emerging, too, as we examine the responses to the consultation.
One is that the existing reporting regime has grown up piecemeal over the years. Now might be the right time for a root and branch review of the framework.
Another is that technology, which has moved on hugely in recent years, may help boost standards of disclosure and make the process less burdensome.
I also have a personal interest in exploring how we might use the ‘nudge’ theory of behaviour to encourage more companies to follow the example of the best.
We have a lot of food for thought here. But the proposals we bring forward will be designed to meet three principal objectives.
First, identifying what’s required to get the standard of narrative reporting up to the level of the very best.
Second, empowering shareholders with all the information they need to be active and committed company owners.
And third, achieving these aims without increasing the overall burden and cost of compliance on businesses.
We expect to publish a summary of responses to the narrative reporting consultation next month. We will then outline our detailed plans, as we move forward with our broader review of corporate governance next year.
As many of you will be aware, that broader review began last month when we issued a call for evidence.
The document, called ‘A Long Term Focus for Corporate Britain’, highlights a number of issues we would like views on, as we consider whether there are shortcomings in corporate governance and the way that markets function.
For example, do shareholders and investors focus too much on the short term?
Should directors’ remuneration be more transparent?
Do boards adequately scrutinise takeover bids with regard to long-term shareholder value, rather than short-term speculation?
Effective capital markets underpin hinge on company boards having strategies that consider the issues which determine their future success - and take account of the risks they face.
So our aim is to ensure that, armed with all the facts, shareholders can hold directors to account and be effective stewards for the business.
That in turn is a powerful way of encouraging companies to focus on the issues that matter to their long-term success.
The Financial Reporting Council’s Stewardship Code - the first of its kind in the world - is a good start. But it is not the end of the story.
To ensure long term healthy growth shareholders have to engage with the companies in which they invest. Owning shares is a responsibility and it should be seen as one.
So the Code also encourages public disclosure of shareholders’ voting activities. Voting at company meetings is one of the most effective ways of providing long-term stewardship.
Placing these decisions on the public record boosts transparency and aids scrutiny.
As we take the Corporate Britain review forward - including our work on narrative reporting - we will be looking at what more needs to be done to bolster effective corporate governance.
This inevitably relies on honest relationships between directors and shareholders, where investors are willing to speak up when they think the strategy is wrong.
And that means directors have a responsibility to ensure their reporting is sufficient, material, pertinent and timely.
The companies represented here tonight already meet, indeed exceed, these standards. So I would urge all of you to answer our call for evidence and give us your views and your insights.
As we work through these issues, our conclusions will be informed by the principles underpinning our thinking on how to renew the corporate governance framework.
A commitment to rebuilding trust. A determination to empower shareholders. And a focus on protecting long-term value.
This Government understands how tough it has been over the past two years, as companies of all sizes have had to fight their way back from the deepest recession for sixty years.
We are not going to do anything which makes that continuing task more difficult. We are certainly not in the business of weighing companies and investors down with more regulation and higher costs.
But we are going to shine a spotlight on corporate governance to further improve accountability and transparency.
That’s why awards like these ones organised by ICSA and Hermes are important. They are an excellent way of identifying really good examples of transparency in governance, and spreading those high standards more widely.
So let me finish by congratulating all the awards finalists. Whatever the results this evening, you are all outstanding examples of British business at its very best.