I was delighted to recently chair a discussion on the new corporate governance reporting regulations and Wates Principles eight months since their inception. Joining me on the webcast was Matthew Fell, Chief UK Policy Director at CBI, Hannah Harris, UK Family Business Leader at PwC, and Matt Timmons, Entity Governance & Compliance, Director, also from PwC. I highly recommend you watch the webcast here if you missed it.
By way of a reminder, you can read about the implications and find out how the regulations apply to your business in our recent blogs [Focus on the outcome, Time to Act and Transforming your approach to Corporate Governance]. Effectively, private businesses have had clear guidance since the turn of the year on what the government and regulators expect, along with a framework and principles to satisfy the law; so this webcast aimed to answer what impact the regulations have had on businesses to date, and also what does good and effective corporate governance actually look like?
There was a very healthy discussion during the webcast around how private businesses have approached the new changes and the reasons why some have struggled to implement them. Here are some of my key takeaways from the session.
The first area concerns Section 172. Reporting now requires substance over form and this is causing businesses to evaluate what they’ve done previously. Are we doing enough? What is appropriate? Do we have enough evidence? These are questions causing concern across boardrooms in the UK.
Another area is operational structures/authority not matching legal entity structures and boards. This is causing confusion as to how people are making decisions in businesses, as the people driving the business aren’t necessarily statutory directors. How can statutory directors demonstrate oversight of delegations on their behalf and the management of stakeholder engagement.
Finally, stakeholder engagement is another area of concern, and this is where the law has changed a little. Businesses are now required to define what a principal decision is, and whenever a board makes one, they must report on the impact assessment they have undertaken against the stakeholders relevant to that particular decision.
There’s been no single method, but we have seen some consistent responses. Firstly, many private businesses have been ensuring they're not out of line with how other companies have been responding. Businesses have been asking: what are companies in other sectors doing? What are companies of a similar size doing? Some companies will have practiced good corporate governance already, and these changes will allow them to tell their story in a more effective way.
For growing businesses, the new requirements may well give them some welcome formality around this, and a good, robust corporate governance framework gives this. Then there's the businesses slightly off the pace. Despite the challenges around implementing the changes, they should look to embrace them and demonstrate the positive impact that they bring to their communities.
The regulations have also made businesses question whether they need better alignment between their operational structure and their legal entity boards to help them with their compliance with the new regulations. Legal entity rationalisation - eliminating entities to simplify reporting obligations.
Matthew Fell reinforced the view that good corporate governance ensures well run businesses, helping to drive productivity and ultimately the bottom line. Can businesses organise themselves in a more efficient way to get better outcomes? That’s the positive question that private businesses need to consider when reviewing their corporate governance.
Despite continued political uncertainty, Matthew believes that for shareholders and boards, the regulations should help businesses to mitigate the external risks; acting as an organising force. Whilst no businesses can have complete clarity over the external environment, businesses can fill in some building blocks, and good governance does just that by improving your risk process and offering clarity of role and purpose.
Hannah Harris concurs with Matthew, believing the regulations offer a good opportunity to assess what governance framework businesses have in place, and whether it’s fit for purpose for their vision moving forward. Many family businesses have a good level of structure, but it’s formalising it, and considering its role which is crucial. Governance gives these companies the opportunity to really consider and define their governance framework.
Matt Timmons reminded us of the Wates Principles and how they can help to foster good governance. Despite being a voluntary code, they have been incorporated and bespoked by many companies, particularly those in the FInancial Services space. There are alternatives, and it’s perfectly acceptable to have your own code in place. There are many examples of organisations developing UK subsidiary governance policies.
Ultimately, demonstration of governance through process and control is crucial; if your business or subsidiary is not having regular board meetings then how can you demonstrate this? Matt highlighted the significant shift he has seen in training programmes being embedded throughout businesses to live and breathe best practice. Focus on a few key areas - employee engagement for example - and seek to make real improvements by deep diving into particular areas.
It was heartening to hear that corporate governance is, in the main, firmly on the agenda of boardrooms across the UK and that the regulations are being embraced and incorporated into existing frameworks and policies. It is clear however that some businesses still need to recognise the true benefits of what good corporate governance can bring to both the bottom line and the communities in which organisations operate.
If you have any questions please get in touch with either myself, Matt Timmons or Hannah Harris on the details below.