ACCA (the Association of Chartered Certified Accountants) has called for a stronger focus on understanding and applying the principles of good corporate governance, rather than a compliance-led ‘box ticking’ approach, in the UK Corporate Governance Code (the Code).
In a submission to the Financial Reporting Council’s public consultation on proposed changes to the UK Corporate Governance Code and Guidance on Board Effectiveness, ACCA says:
1. The Code must be shortened and sharpened
ACCA supports the FRC’s endeavour to keep the Code a principles-based document.
“Over 25 years of application and development, the Code has lost some of its original clarity and consistency: and this consultation process is the ideal opportunity to bring it back to core principles,” said Jo Iwasaki, head of corporate governance at ACCA.
“If we shorten the Code to clear principles, supported by ‘comply or explain’ provisions, it can most effectively function as a framework document which can be used across all sectors and organisations. And of course, it can include signposts to specific practical guidance resources where appropriate for those who may need it.”
2. The discussion around corporate governance has progressed
“In recent years, our understanding of corporate governance has shifted,” adds Iwasaki.
“Many organisations, ACCA included, have written extensively about corporate culture – and the need for business leaders to take responsibility for building a healthy and robust corporate culture.
“And it has also become more generally acknowledged that the role of the board is much broader than wealth maximisation. Today’s best performing companies bring together all of their internal and external stakeholders, the entire workforce included, to align with their purpose and create optimal value.”
3. The Code should focus on outcomes over procedures
“For the Code to acknowledge this more comprehensive and nuanced view of corporate governance, it must move from a focus on mere compliance to processes and procedures to the effect of applying them.
“The Code can most effectively encourage business to consider this holistic approach to corporate governance by putting its focus on intended outcomes, rather than isolated actions, details or procedures.
“What matters is not simply what companies have done, but more so what they have achieved by doing it. An outcome-focused framework requires companies to think independently about how to apply the principles to achieve this outcome – and therefore encourages a more meaningful exercise.”
ACCA’s comments to the FRC on the UK Corporate Governance Code and Guidance on Board Effectiveness are available in full here.
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