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Placebo effect FRC corporate governance consultation will at best only offer a homeopathic cure for boardroom ills suggests expert

December 21, 2017

 

 

 

AFTER scandals too numerous to list, the time for boards to mark their own homework is long overdue to be over. Yet, it seems, corporate governance regulator the FRC (Financial Reporting Council) still requires the show trial of further consultation in order to kill off Theresa May’s attention seeking proposal to force boards to appoint workers to their boards.
 
Corporate governance expert Gerry Brown notes, “After the Prime Minister decided she had loudly barked up the wrong tree of worker representation at board level, her tame friends at the FRC have decided to further water things down, almost to homeopathic levels, with the carefully chosen terms of their latest consultation. Not only has the FRC carefully selected the most anodyne placebo-style consultation options (assign non-exec director to represent employees; nominate a director from the workforce; create an employee advisory council or talk to the hand) but, worse still, there will be NO LEGISLATION or effective enforcement to back up the option chosen from the consultation that closes in February 2018. News that the resulting code will be enforced on a “comply or explain” basis (aka companies that ignore it must provide an explanation) appears to redefine toothlessness as well as green light and turbo-charge further board level scandals rather than actively seek to hinder them.”
 
Brown continues, “Whatever the FRC consultation finally ‘reveals’, the new voluntary code will be ineffective when it comes effecting much needed cultural change at board level.  What the FRC really needs to do is to administer some stiff medicine, not least encourage greater shareholder activism (to ensure boards are held to account) and embrace greater diversity. If legislation is required then it should be to ensure that all executive directors and non-executive directors gain formal accredited qualifications for their roles. These steps are eminently more effective in reducing the cosy cultures and group think that so often leads to scandal. Insistence upon properly qualified directors should be part of any proper programme of action undertaken by the FRC.”

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