The government’s proposals to enhance transparency and increase levels of trust in UK business are laudable and worthy of support, but care must be taken not to assume that trust will always and necessarily follow-on from increased public disclosure, says ACCA (the Association of Chartered Certified Accountants) in its response to the BIS discussion paper Company ownership: transparency and trust.
ACCA says that the focus of government policy should be on increasing public confidence in the way that businesses are run, and while disclosure on financial and other matters can contribute to that end and can incentivise responsible behaviour on the part of directors, policy on disclosure must always be justified by reference to the cost/benefit test.
Trust in the true sense stems from businesspeople being seen to be acting in the right way, and this is not necessarily achieved by compliance with rules.
In its response ACCA makes the following specific points:
- in order to strengthen the accountability of company directors to their shareholders, they should be required to state formally in their annual reports that they are aware of their legal responsibilities and have complied with them; listed companies should disclose how they have gone about complying with those responsibilities
- companies should be barred from acting as directors of other companies except in limited circumstances, such as when incorporating new companies
- all companies should be required to identify any person holding a controlling ownership stake in them, but the establishment of a central register for filing that information, as proposed by the Government, would go beyond what is necessary to achieve the policy objective.
- creditors and the general public would benefit from a more robust approach to the disqualification of errant directors and recovery of funds owed: the proposal to allow liquidators to assign their rights to pursue reckless directors is a pragmatic idea for allowing recovery actions to take place when liquidators are short of funds to do so themselves.
John Davies, head of technical at ACCA, says: “The rules governing the conduct of company directors are difficult to enforce and in some respects illogical. We need a regime in which all directors are subject to the same body of rules. This is not currently possible where companies can act as directors of other companies; further, situations where individuals act as directors as effective proxies for third parties, and have little appreciation of their fiduciary duties in relation to the company on shoes board they sit, are not conducive to good corporate governance.
“We need to strengthen the standards expected of all directors by requiring them to state formally in annual reports that they recognise their legal responsibilities and have sought to comply with them.
“With regard to the identification of beneficial owners, it is right that all companies be required to identify those individuals who own a controlling stake in them. This will help in the fight against tax evasion and will help those advisers and institutions who have responsibilities to identify beneficial owners under anti-money laundering legislation. It will also help companies in the process of engaging constructively with their shareholders. But establishing a central register for filing that information would be unnecessary and amount to an exercise in gold plating.”
John Davies concludes: “Ultimately, public policy needs to aim to ensure that individuals who run companies understand what is expected of them and commit themselves to carrying out their functions with due regard to their fiduciary obligations and standards of commercial morality."
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Notes to Editors
- ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
- We support our 162,000 members and 428,000 students in 173 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 89 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
- Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.