UK Governance Reforms – Why Doesn’t Government Start By Taking Its Own Medicine?

UK Governance Reforms – Why Doesn’t Government Start By Taking Its Own Medicine?

There are many ironies in the UK government’s review of corporate governance, as a new article on makes clear.


It all started with the Prime Minister’s instincts that people felt big business was not behaving responsibly. Hence the talk, since largely abandoned, about employee directors.


If government really wanted to promote better behaviour by business, it would make mores sense to begin closer to home. As I pointed out to the then Minister, Margot James, in 2017, government purchases well over £200 bn of services from the private sector every year. Its obsession with price cutting at the expense of quality is, in my experience, a major driver of corporate irresponsibility. Its insistence on not letting departments build reserves and use unspent money in the following year encourages short termism and waste. If it wanted to tackle bad behaviour it could could refuse to do business with companies that repeatedly fail to pay all companies, but especially small companies, within 60 days in line with the governments own Prompt Payments Code.


That may sound carping. On the positive side, BEIS is to be congratulated for encouraging the British Standards Institution (BSI) to develop work on the Tomorrow’s Company concept of the Trust Test – a form of character due diligence which would screen out private companies without the right values or business model from working in the public sector.


But where does government or the Financial Reporting Council get the idea that we will have companies that behave better if we force the chairman or woman to step down after 10 years on the board, and after a much shorter period as chair? I remember talking to a wily and experienced banker. He told me how, after over 30 years, he had learned to spot early signs of a bubble, and influence the bank of which he was then chairman to take evasive action. That is exactly the kind of experience that we need on listed company boards. Would that there had been more tough questioning from wily and far from independent directors on the Carillion board. Experience is even more important than independence. seventy-year-olds on the


Investment Association Reveals Its Confusion


Perhaps the biggest irony of the consultation comes with one of the government’s strongest ideas – asking companies to disclose how they contribute to wider society. This is praised by Old Mutuals Richard Buxton, but draws a horrified reaction from the fund managers trade association the Investment Association. (@InvAssoc)


‘We are concerned that the wording of the proposed code does not fully reflect shareholder primacy as it puts contributions to society on the same level as generating value for shareholders’


What a marvellous display of confused thinking and legal ignorance. Is the investment Association telling us that it doesn’t believe that its members’ job is to contribute to society? Doesn’t it understand that the clients who ultimately provide its profits are people, who live in society, and who want a financial return but still expect companies to stop generating cheap plastic that poisons the oceans or poor quality food that is fuelling the spread of diabetes?


What ill-educated legal advisor has told it that the Companies Act ‘reflects shareholder primacy’? It does no such thing. The law states that It is for directors to decide the purpose of the company, and how to balance its obligations to shareholders in the short and long term. . Directors who have done their homework will find that the companies like Tata and Toyota and Unilever who have been around longest to deliver shareholder value have been the companies that are most concerned to make money in ways that contribute to society.


So here is another area in which we can now praise the government. Asset management companies – at least those which are listed, and perhaps later, those which are private – will from now on have to explain how they contribute to society. Let them show us all those occasions where they are ensuring shareholder primacy at the expense of society!