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Santa and his shelves

It’s Christmas, so it’s only right there should be a warning about supply chains because, you know, Santa has to take these things into account.

The Chartered Institute of Internal Auditors (IIA) says boards should be preparing for “unforeseen global disruption” that could play havoc with their supply of goods and raw materials. In fact, the report suggests cyber threats, crop failures, labour shortages, post-Brexit issues, pandemic recovery and the war in Ukraine are “all exacerbating supply chain risks”. So, not much to deal with there.

IIA’s chief executive Anne Kiem says: “In today’s dynamic market, embracing innovative strategies and being agile in supply chain management isn’t just wise—it’s essential for keeping shelves stocked and lives uninterrupted.”

That’s a warning worth heeding, but it does feel a bit like Krampus has got in among Santa’s elves.

Rise of the rising sun

Japan has performed a minor miracle climbing three places in the annual Asian corporate governance rankings to second spot.

Meanwhile, Hong Kong is having a dismal time, dropping from second last year to sixth place.

The rankings, compiled by the Asian Corporate Governance Association (ACGA), see Australia stay top, way ahead of the field.

But the story is all about Japan and Hong Kong. ACGA’s report says: “Markets with a reform agenda and more agents of change gained the most ground in our rankings. Japan is an example. Policymakers have ramped up CG reforms; the Tokyo Stock Exchange is actively attempting to boost shareholder value; companies are being urged to unwind cross shareholdings while investor activism is evolving in novel ways.”

Hong Kong took a hit on its points for government and public governance, civil society and media scores. “Despite this,” says the report, the territory is “holding up in terms of enforcement, auditors and corporate governance rules.”

Well done, Japan. Investors, form an orderly queue.

Getting the measure

The UK’s new governance supremo, Richard Moriarty, the freshly appointed chief executive of the Financial Reporting Council, has wasted no time in setting out his stall.

From a body that currently has the UK’s Corporate Governance Code under review, Moriarty has opened up enough in an interview for The Times to give some insight on his views.

He will not be pursuing regulation for the sake of it, The Times reports, but will be “proportionate”.

“I don’t see this as some kind of caricature of a race to the bottom of regulation. I don’t think anyone is suggesting that. This is about smart regulation—and being smarter,” he says.

His remarks come after the government set out a brief for Moriarty that includes a remit for the FRC to “contribute” to the growth of the UK economy.

The flavour of the month now appears to be U-turning on proposed new governance measures. Government recently dumped new risk and resilience reporting measures, alongside others, while the FRC itself jettisoned a slew of new proposals that were set to appear in a revamped corporate governance code, due for publication in the New Year.

Still, it’s understandable there’s a rush on. A general election is just around the corner; best to bury your least favourite policies now.

Drowning in tiers

Staying with the FRC, its watchdogs have given small audit firms a bit of a spanking. Of 13 audits undertaken by small outfits only a third-ish (38%) required “limited improvements”. The rest needed “more than limited improvement”, or “significant” improvement.

The report says the FRC continues to find “deficiencies” in judgements and estimates and going concern. Watchdogs say the auditors, known technically as Tier 2 and 3 firms, must “respond swiftly”.

This is not just about the quality of their audits, the FRC says, this is also about “resilience and competition” in the audit market.

Sarah Rapson, executive director of supervision at the FRC, says it is “important that all firms step up to improve the overall health and resilience of the audit market”.

Truth or consequences

BP’s former chief executive Bernard Looney has learned the cost of not being fully transparent with the board about relationships with BP colleagues—£32.4m.

A statement published by BP spelled out that the former CEO would forfeit a bulging cash pile: no salary, pension, benefits, from the date of his dismissal; no annual bonus for this year, and six years’ worth of unvested shares will be allowed to lapse in full as will unvested deferred annual bonus.

The statement reads: “Following careful consideration, the board has concluded that, in providing inaccurate and incomplete assurances in July 2022, Mr Looney knowingly misled the board.

“The board has determined that this amounts to serious misconduct and, as such, Mr Looney has been dismissed without notice effective 13 December 2023.”

Board Agenda assumes that every executive has now learned the value of, not only transparency, but a little bit of judgement when it comes to workplace liaisons.

Overpaid and over here?

The London Stock Exchange’s chief, Julia Hoggett, may have angled for higher executive pay deals here in the UK, but in the US it seems investors still don’t like excessive pay deals.

The Financial Times reports this week that dozens of companies which had planned to change their executive pay arrangements (for which read “increase”, as these rarely go down) “struggled to win support”, according to research from proxy adviser Glass Lewis.

This included 17 firms where pay proposals “failed” to receive a majority vote—double the figure from 2022.

In September, research from consultancy Georgeson showed that pay remained a hot potato across Europe, with over a third of all votes of shareholder “dissent” topping 10% being about pay.

In the spring, Julia Hoggett was accused of being “tone deaf” after suggesting in an LSE blog that the UK should reopen the debate on pay to make the UK an “attractive place for companies to base themselves”.

In an ongoing cost-of-living crisis, pay remains a sensitive topic, on both sides of the governance pond.

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