This article was first published in the June 2016 UK edition of Accounting and Business magazine.

As Sir Win Bischoff, chairman of the Financial Reporting Council, told the nation’s listening public on Radio 4’s Today programme last month, the corporate governance code is being ‘followed pretty rigorously’. 

This is not the standard early-morning news fare that the seven million people who tune in to the show each day normally hear. Mostly the programme consists of shrill and fractious spats with politicians interspersed with football news and famously inept racing tips. To have had this excitement brought to a halt with discussions about corporate governance must have come as a bit of a shock.

But it had a serious point. Within the business world the common perception is that, at this distance from the great financial crash, people have largely got a grip on the corporate culture that led to the disaster. It is taking time. But it is working and it is changing. That, largely, is the view within the business community. But to the public, who tend to hear only the headlines, it is a different story. In their view business is still a gargantuan and uncaring mass of wildly overpaid souls careering on towards what the public hope is a precipice with no protective railings.

And the last few months have done little to alter the perception. BP produces its worst ever results and what happens? The chief executive trousers, as the public would say, £14m – a rise of 20% for his year’s efforts. As Hans Hoogervorst, chairman of the International Accounting Standards Board, pointed out in a speech the other day, such deals are almost free of risk, by being ‘based on non-GAAP measures that almost completely insulate income from factors that are considered to be outside the control of management’.

Even more extraordinary in the public’s view is what happened at Volkswagen. A highly public scandal over emissions fixing sees the value of the car company plummet by €40bn. And the chap in charge is booted out with €7.3m remuneration, of which some €5.9m is deemed to have been performance related. And if you then add in the tale of the offloading of a chain store empire to an unknown bankrupt for the price of £1, a host of its pensioners facing uncertainty while the previous owner flaunts his wealth in Monte Carlo where his wife lives in tax exile, then you can see why the public think that the business folk are having a laugh. 

It’s unclear what point Bischoff sees in appearing on the early morning radio waves with the message that ‘shareholders will make their views known and companies will have to listen’. It is not a happy place for business to be.

The long game

But Bischoff and his ilk are playing a long game, plugging doggedly away and recognising that culture takes a very long time to change. But it is the right route to take (see box). Andrew Bailey is swapping regulatory hats after the Bank of England and the Prudential Regulation Authority and will shortly become head of the Financial Conduct Authority. In his valedictory speech, he said: ‘There has not been a case of a major prudential or conduct failing in a firm that did not have among its root causes a failure of culture as manifested in governance, remuneration, risk management or tone from the top.’ Culture is the thread that runs through all of this. Get it wrong and everything else goes. So that is where the focus has to be.

Not that it is easy. Remuneration is always going to be one of the greatest difficulties. It is hard to justify the average pay of CEOs being several hundred times that of median salaries. Yet no remuneration consultant is going to recommend that it should be anywhere other than the top quartile. It all ratchets up. 

The most recent report from the US corporate social responsibility outfit, As You Sow, points out that since the 1980s CEO pay has grown an astounding 997%. This is, as the public knows, way ahead of the growth of the stock market, the economy or their own wages. The CEOs of the S&P 500 companies have seen their pay rise significantly over the last year, while the stock market has declined. Such simple comparisons carry the day.

Yet it is hard in an era where share ownership is diffuse and indirect for anyone to make a challenge. There are activists, but they are noted by their individual actions. There is no great movement forcing the refusal of huge rises in remuneration. In the case of BP, the furore came at a point when the increase had already been agreed. 

And the problems of remote share ownership can only grow. Mary Jo White, chair of US regulatory body the Securities and Exchange Commission, recently gave a speech at a Silicon Valley corporate governance event. The future, or ‘automated investment platforms’, loomed large. ‘These so called “robo-advisors” offer discretionary asset management services based on algorithms and provide minimal, if any, interaction between advisory personnel and investors,’ she said. So the future is likely to see even less connection between investors and efforts at corporate governance. 

But for now, the likes of Bischoff and principles of governance are the only long-term way of bringing about and maintaining change. The more this becomes standard fare, the more the exceptions to decent behaviour stand out and the more criticism they will attract. Reputation risk and cultural behaviour can curb idiots from making idiots of themselves. The rest of the business world might be a healthier place, leaving the Today programme more space for its obsession with football and racing tips. 

Robert Bruce is an accountancy commentator and journalist