An independent Corporate Governance Commission should be established to oversee the UK’s corporate governance framework, enabling the Financial Reporting Council (FRC) to better focus on its core task of improving company audits, the Institute of Directors has argued.
Recent corporate failures have highlighted the need for a fundamental review of the purpose of the statutory audit and how it is overseen by the regulator. However, business leaders fear that having corporate governance and investor stewardship regulated within the same body as statutory audit is a far from ideal approach, given the differing regulatory approaches that are needed in each area. The UK Corporate Governance Code and the UK Stewardship Codes are both ‘soft law’ codes which aim to influence corporate behaviour through best practices rather than mandatory regulation. This contrasts with the oversight of statutory audit where a more robust regulatory approach is needed.
In its submission to the Department for Business, Energy and Industrial Strategy consultation on the Independent Review of the FRC, the business group proposed that the UK’s governance and stewardship codes be administered by an independent body with close links to business and investors, rather than simply being an ‘add on’ to an accounting regulator. The IoD argues that the shaping of voluntary best practice for boards of directors, and the setting and enforcement of accounting standards are very different activities and should, therefore, be overseen by separate bodies.
The IoD said the new commission would work with industry to create greater accountability and transparency of the UK’s corporate governance framework. This would help the process of making changes to the UK Corporate Governance Code become more transparent, with clearer lines of accountability, rather than being subsumed by a large regulator where corporate governance is just one concern amongst many.
As well as a new commission, the IoD recently proposed an industry-led professional standards board tasked with upholding high standards of director competence and continuing professional development. This, it argued, would be a more effective and proportionate way of enhancing director accountability, as opposed to giving the FRC power to take action against non-accountant directors.