Isn’t our corporate governance wonderful? No, it’s a joke

“Our system of corporate governance is rightly envied and emulated around the world” according to the Prime Minister’s introductory words in the White Paper on corporate governance. That was before Carillion. And before the evidence given to Parliament by some of Carillion’s senior executives (well worth a read for its sheer Through the Looking Glass quality).

The reality is quite different. The UK’s corporate governance framework is weak and inadequate. Much like our current government I guess. Which is why it is not surprising that the White Paper was so timid.

Improving the quality of corporate governance is, of course, not an easy task. Even if the government were to take a muscular approach, many would find ways round the system. Absent any kind of meaningful reform, Carillon type scandals will continue to plague us all – and will continue to have a dismal impact on many people’s lives.

The next opportunity comes in the form of the ongoing consultation by the Financial Reporting Council. This, too, has the opportunity to become another exercise in re-arranging the deckchairs. For instance, the consultation document comes up with such ground-breaking insights such as: “in order to establish an appropriate culture, a board must define the purpose, strategy and values of the company, and consider the type of behaviours it wishes to promote in order to deliver its business strategy.”  Wow! I’m sure nobody has ever thought of that and we are all grateful for having it so clearly explained.

Of course we know that many quoted companies have a very clear set of values: make your quarterly earnings, maximize the stock price and the value accruing to shareholders and, in doing so, more or less anything goes. True, corporate websites don’t quite put it like that. Many contain lots of guff about caring for the environment, ‘our employees are our biggest asset’ (except in downsizing frenzies), blah, blah. And some companies do have leaders that do, indeed, have a broader set of values that they try to live by.

But when push comes to shove, making those earnings and stock price targets trumps more or less everything else – including adequate funding of the pension fund.

Governance cannot work properly in the absence of a properly functioning board. And most boards are simply not fit for purpose.

The FRC’s section on board diversity is especially illuminating. It starts off well by suggesting that companies should “ensure that board membership is diverse and relevant to the company’s business.” Reading further one realizes that there is a particularly narrow view of ‘diversity’. All further writing is about gender and ethnic diversity. Now, there’s nothing wrong with that. And it should be encouraged further.

But what about diversity of thinking? Diversity of backgrounds and political views? The ability to have board members that don’t come out of the same sausage factory as all the other executives; stuck in the same mindset, the same view of what business should be about. It is only that sort of diversity that will truly challenge management. And it won’t be achieved simply by focusing on gender and ethnic diversity.

One only has to look at the composition of the FRC’s own board to see that it contains a monoculture of background and, probably, perspectives.

It does make one wonder somewhat whether the FRC’s diversity policy is really intended to improve governance or whether it’s simply an exercise in political correctness.

Help us lay the intellectual foundations for a new radical politics. Sign up to get email notifications about anything new in this blog.

Rate this post!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.


  1. Peter Arnold says

    I thoroughly agree with this post. The UK’s corporate governance is a mess, focused on purely short-term metrics, and completely incapable of planning for the long-term. Radical reform of company law is urgently needed.

Leave a Reply

The Author
Latest Related Work
Follow Us