Complaint handling

It’s emphatic and rather brief. We’re talking about the comment from the UK’s chief governance watchdog, Sir Jon Thompson, chief executive of the Financial Reporting Council, in response to complaints from audit firms about the fines meted out for dodgy audits.

Speaking to the Financial Times, Sir Jon says: “It’s no good complaining about the fines. The solution is entirely in [the audit firms’] hands. Do a good audit and you don’t get in trouble with us.”

That dismissal comes after the FRC reported that that it imposed record fines in the year to March 2022 of £46.5m. Most recently, KPMG was fined £14.4m, the firm’s largest ever fine, after its staff misled regulators inspecting their work.

The FRC not only seems to be getting tough with its penalties but also its statements. Audit firms have been warned.

Carillion fines

Speaking of fines: the Financial Conduct Authority last week concluded its disciplinary procedure for former Carillion directors, with fines running into six figures.

Carillion collapsed in 2018 and prompted an insolvency procedure and a major regulatory review of audit, the audit market and audit committees.

Former chief executive Richard Howson was fined £397,800; former finance chief Richard Adam was fined £318,000, while the finance director in charge at the time the business went under, Zafar Khan, faced a fine of £154,000.

The company would have faced a fine of £37m, had it not been for the fact it is currently being liquidated.

The fines relate to statements made about Carillion’s financial position on 7 December 2016, 1 March 2017 and 3 May 2017, which the FCA says the directors failed to ensure “accurately and fully reflected” the company’s situation.

Mark Steward, the FCA’s enforcement chief, said that, as a result of the statement Carillion’s “true financial position remained hidden over many months”, aggravating the company’s eventual collapse. The Carillion saga rumbles on.

Abolish the corporate governance code?

Yes, some experts believe the UK should do away with its corporate governance code. Now, Board Agenda is not a supporter of this view but, in the interests of rigorous debate, we published a piece by Cambridge profs Bobby Reddy and Brian Cheffins arguing that the code doesn’t permit governance “innovation”, overlaps with other regulation and increasingly seeks to address issues in ways that allow “officials an excuse to postpone tough and necessary regulatory decisions”.

Where Board Agenda leads, the nationals follow, with the Financial Times giving space to Cheffins to repeat the code “abolition” argument a few weeks later. And that’s picked up a bit of momentum with Laura Spira, a professor at Oxford Brookes, writing to the FT in support: “A fundamental reassessment of the means of securing corporate accountability is long overdue: an abolition of the code could be a small step on the route to wider reform.”

Given how long it’s taken audit reform to come to fruition, it’s anybody’s guess when the code could be thrown out. So, don’t give up on it yet.

Cadbury moment

As expected, not everyone is impressed with the Cheffins and Reddy argument. Seamus Gillen, a director with Value Alpha, a board evaluation service, writes to the FT that codes have enabled him to have conversations with directors “about what it really means to run their organisations well”.

“On the 30th anniversary of the publication of the first governance code (the Cadbury Report), let us not become the country that fails to understand that [the] code, whatever its shortcomings, has helped make the business world a far better place.” Fair enough.