Corporate governance is vital to societies that depend on business to create economic wellbeing. Achieving good corporate governance is complex: it involves economics, politics and fundamental aspects of human nature as well as business and markets. Partly for the sake of brevity and because the term corporate governance is not just relevant to companies, the word governance is generally used in this paper. Ultimately, governance is about how to make good decisions. As providers of financial information to support better decision making, accountants play a key role in governance.
Capital markets, and attitudes to them, have changed radically in the 20 years since the present direction of governance was set. ACCA is now questioning whether existing corporate governance and risk-management frameworks remain fit for purpose in light of current financial and economic conditions and our experience of how the frameworks have operated in practice over the past two decades.
Although corporate governance has grown from sound roots, it has become burdened with excessive rules and too much complexity. Events since 2007 have demonstrated that certain banks and other major corporations which were thought to have excellent standards of governance and risk management turned out to have neither. Present approaches have not ensured that companies focus on, and succeed in, creating long term sustainable value.
Governance and risk management are complex matters that go to the heart of thinking about business, finance and economics. The consultation paper now being published by ACCA does not claim to include all the right questions, let alone all the right answers. The hope is rather that this inquiry will lead to a better understanding of the problems and also to some solutions.