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This subject has been on the regulatory radar for some time now and it seems unlikely this will be changing any time soon, due in part to the government's recent release of its corporate governance green paper. In the aftermath of the Brexit vote and amidst increasing technological advances, the UK is aiming to enhance its reputation, and Prime Minister Theresa May has pledged to bring reform to the regime.
"For people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public" she says.
"Where this social contract breaks down and individual businesses decide to play by their own rules, faith in the business community as a whole diminishes – to the detriment of all. It is clear that in recent years, the behaviour of a limited few has damaged the reputation of the many. It is clear that something has to change."
The government's green paper, which closed in February, called attention to many key points on executive pay, including corporate governance in large and privately-held businesses. In addition to the government's investigations, the Business, Energy and Industrial Strategy House of Commons Select Committee has also been conducting their own inquiry, while there has also been the promise of a "fundamental review" of the UK's Corporate Governance code by the Financial Reporting Council along with proposals for tightening the corporate governance regime for larger (based on a financial threshold) and/or more complex unlisted companies.
The current message seems to be that, even with reform in its early stages, the status quo should prepare for an upset. And yet, there is concern that many of the reforms only address historical failures and fading trust in business instead of encouraging a new focus on the system's much-needed evolution. As technology develops, globalisation continues and social media becomes an even bigger extension of a company's communication strategy, there are many issues which the green paper does not seem to consider, such as ownership of corporations becoming more dispersed, changes to the traditional business models of market leaders, and the merging of industries and markets which change the accepted corporate governance norms.
The UK's corporate governance framework will need to be flexible, and this becomes even more imperative as companies continue to acclimatise to a shifting and dynamic business environment. Proposed reforms should aim to be as futureproof as possible, by helping to equip companies and their boards with the tools they need to form an appropriate environment for inspiring entrepreneurial leadership, board-led communication with stakeholders, attracting international talent and developing maintainable prospects.
Above all, any corporate governance reforms put in motion will need to ensure, especially in the uncertainty of a post-Brexit business landscape, that the UK business sector can grow, and remain both innovative and appealing.
With a changing corporate governance landscape and ever-increasing regulatory requirements it's more important than ever to ensure your corporate governance processes are as robust as possible.
While adherence to the Corporate Governance code is mandatory for listed companies, it sets good basic principles which non-listed companies should consider.
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