A new corporate governance code will be introduced in the UK later this month. The CEO of the Financial Reporting Council, Stephen Haddrill, says that the code requires boards to consider and report on strategic risks that could affect the long-term viability of the business they govern. This sounds like a positive development: that measures designed to refocus the attention of the board on the long-term viability of the company can only be good for company continuity and performance. However, I'm not convinced.
Compliance type regimes were insufficient in averting the corporate collapses of the early 2000s; the global financial crisis of 2008–2009; or some of the more recent failures of corporate governance. Statutory reforms and codes of practice, introduced in response to corporate failures and the behaviours of recalcitrant directors and boards, appear to do little to protect against failure, or improve the quality of corporate governance or company performance. Indeed, the sharp focus on monitoring and control that often occurs as a result of statutory reforms and codes may actually reduce performance and, in more extreme cases, contribute to corporate failure. Compliance-type regimes tend to do that. Will the new UK code be any different?
Thoughts on corporate purpose, strategy and governance; our place in the world; and, other things that catch my attention.