Over the past year there has been a renewed interest in modernising corporate governance among practitioners and policymakers.

Last week, the UK government published its long-awaited paper on corporate governance, after having launched a public consultation last spring to gather opinions on how to improve the corporate governance framework.

During the consultation period, the Modern Corporation Project at Cass Business School, together with the purpose-driven law firm Frank Bold, hosted a series of events in London that brought together the leading voices in the UK corporate governance field to discuss the key questions raised in the debate and assist in the development of a governance model fit for the challenges of the 21st century.

The organisers of the series welcome the progress made, but highlight that “much more can still be done to engage with the negative consequences of the current corporate governance system”. A significant opportunity in this respect is presented by the Financial Reporting Council, which is currently reviewing the UK Corporate Governance Code.

The following summaries reflect the discussions held in London and recap the remarks of panellists and keynote speakers. A condensed list of conclusions from the series is also available online.

“Key principles of a new corporate governance model” event

The summary of the event is available here. Keynote address by Iain Wright MP, chair of the BEIS Committee, UK parliament.

The first event focused on three key topics: executive pay, fiduciary duties and stakeholder engagement, that have been considered by the UK parliament and UK government in their respective inquiries into reforming corporate governance. Participants in the discussion examined how recent calls for a change of these particular aspects are connected to a broader rethink of corporate governance models.

Top three conclusions:

1. Section 172 of the UK Companies Act, which outlines directors’ duties, obscures rather than clarifies the relationship between the interests of the company and of the members (shareholders). This problem can be addressed by simplifying the main definition of the obligation of directors to act in good faith by promoting the success of the company as an ongoing enterprise. The consideration of members (shareholders) can be moved to the list of factors considered by directors below this main definition.
2. Disclosure requirements should be aligned with the contents of directors’ obligations under section 172 of the UK Companies Act 2006, and guidance should be given outlining how directors should comply with these requirements.
3. One way to rebalance executive pay towards the success of the company is to allow employees to express their views on executive compensation schemes through an appropriate consultative body, and, ideally, through representation on the remuneration committee.

“Systemic risk and corporate governance” event

The summary of the event is available here. Keynote address by Paul Druckman, chair of the Corporate Reporting Council, FRC.

The second event focused on how broad systemic risks from the environmental and social areas relate to corporate governance; how these medium and long-term risks can be assessed and reflected in business, investment, and insurance strategies; how regulators can best address these risks; and what relevant economic models are available to engage with these broad systemic risks.

These topics are currently being considered by the EU High Level Expert Group on Sustainable Finance, whose recommendations will feed into the EU Capital Markets Union initiative. Discussants examined both best practices and potential policy reforms.

Top three conclusions:

1. The regulatory strategy for corporate governance currently focuses on transparency, and relies predominantly on shareholder pressure, but it should also consider managerial stewardship. It should give greater space to companies to retain and reinvest the profits they are making and consider strategies to react to systemic risks.
2. Investors need to be forward-looking. They should describe their investment strategy and make recommendations on reporting to that effect. In doing so, investors’ strategy should integrate and justify ESG considerations, such as carbon footprint, into every investment decision.
3. For systemic risks, such as climate change, a system-wide approach is needed. This means that broader metrics are necessary in corporate governance reporting than those currently used.

“Corporate governance and reporting” event

The summary of the event is available here. Keynote address by Richard Howitt, CEO of the International Integrated Reporting Council.

Building on the results of the previous two seminars, the third event of the series focused on best practice and the desired development of reporting and accounting practice and policy, a topic that has been raised in all of the above-mentioned policy debates.

The participants reflected on it from the perspective of corporate purpose, fiduciary duties, and long-term and ESG risks. They also provided recommendations for practice and evolving legislative requirements that aim to support long-term oriented governance, such as the EU Non-Financial Reporting Directive.

Top three conclusions:

1. Integrated reporting provides a mechanism that connects the existing reporting and accounting framework with a broader view on how businesses can create value, manage financial and non-financial capitals, and interact with their stakeholders. It allows companies to align their reporting with their purpose. For the development of practice and regulation, integrated reporting can be used to clarify key issues, such as the concept of materiality, sustainability and the interaction of reporting with corporate governance.
2. With regard to integrating climate risks in companies’ strategic considerations and financial projections:

• The French regulatory framework for reporting, including Article 173 of the Law on Energy Transition and Green Growth (which requires both institutional investors and listed companies to consider the implications of climate change on their businesses), was considered to be an example of a well-functioning regulatory approach.
• The recommendations of the Financial Stability Board Task Force on Climate Related Financial Disclosures suggest a potential method of reporting on climate risk and, as such, can be recommended for implementation in practice as well as for policymaking.

3. From the perspective of a sustainability-oriented investor point of view, we should move away from distinguishing between sustainability for the company and sustainability for the society, and furthermore stop separating financial and ESG analysis. In this respect, the ESG perspective should not be limited to risk analysis.

Filip Gregor is head of responsible companies at Frank Bold, and Jeroen Veldman is senior research fellow at Cass Business School. 

These Cass events were jointly hosted by Cass Business School and Frank Bold, a European purpose-driven law firm, with support from Ecole des Mines ParisTech and Hertfordshire Law School. Board Agenda has covered the series of roundtable discussions as official media partner.