In the third article in our series on how the reliance on compliance has led to countless governance failures, we explore how to address the expectations gap and prevent the imminent destruction of the reputation of the accountancy profession.
Are auditors’ reputations going the way of those of the banks through hiding behind compliance, and if so, what are the implications?
The UK has recently suffered the collapse and liquidation of its second biggest construction company and one of its biggest providers of construction and services to the state through the Private Finance Initiative (PFI). Up till this point, Carillion, the UK’s second biggest construction company, passed all the formal tests: unqualified audit reports from KPMG, compliance with the Corporate Governance Code and cooperation with the Stewardship Code. However, analysts have been predicting problems for some time, having analysed its accounts and spoken to its suppliers and customers, and its shares were shorted by hedge funds for several years before its demise.
So what price compliance? This disaster prompted us to look back at the corporate scandals which have led to regulatory responses and to consider, yet again, why these successive regulations have consistently failed to prevent subsequent scandals.
We have featured Toshiba several times this year in our new ACG Report, and the twists and turns have been fascinating. The likely end result is both surprising and at the same time unsurprising, though the long term implications for governance could be ground-breaking. This post is taken from the latest issue of the report which is available free to subscribers.
Kobe Steel is one of the pillars of the Japanese industrial establishment. In a few short weeks in October, its share price suffered a disastrous drop of some 40% following revelations by the company that over some years it had routinely produced fake quality control data. We look at its code of conduct, apply Japan’s Corporate Governance Code and our Golden Rules and suggest measures that should now be taken to stop this happening again.
ESG is now mainstream and holistic Corporate Governance now drives brand value. But exactly what is ESG? We look at its origins in Responsible Investing and the principles thereof, various interpretations of ESG and its evolution towards complete acceptance by the investment community of the effect of holistic corporate governance on sustainability (in the widest sense) and hence brand value.
As the western world has been working to improve corporate governance in the years since the Cadbury Report of 1992, the Muslim world has been addressing the issue of how to reconcile the principles developed in the various codes with Islamic principles. We look at how these principles might be incorporated into western Codes and our Golden Rules.
We have written often, and at length, about the imperative of taking a holistic approach to Corporate Governance, and that balancing the interests of primary stakeholders in formulating the Goal of the organisation is key to this. In UK company law, we can see that this is now effectively explicit in the statutory duties of directors.
We discussed active versus passive investment in an article last year, but what about impact investment? It comes after socially responsible investment (SRI) and environmentally sound, socially beneficial and excellent governance investment (ESG). Is it more than just another marketing tool for investment managers, and how does it rank in corporate governance compared with traditional investment?
Most of the corporate governance debate focuses on corporate accountability, yet a company is, by definition, a group of people and as such, personal accountability should have primacy. How and why is it, then, that companies are fined (which affects all employees), yet very few individuals (especially directors) are actually held personally responsible for their action (or lack thereof)?