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In March, the Department of Business, Energy and Industrial Strategy published a consultation on Restoring Trust in Audit and Corporate Governance. If you can overlook, for a minute, the obvious and distracting question whether DBEIS could help to restore trust in government by abandoning the consultant-approved phraseology of a corporate mission statement and reverting to "DTI" (it could), the publication might be worth a look. Comments are due by 11:45:00h on 8 July 2021. I'm not quite sure where this new fetish for photo finish consultation deadlines comes from but I would suggest filing by 11.43am, to give yourself a margin of error. After 11:45:01, the Government server automatically replies to your submission with a Trojan Horse virus designed to forward copies of Boris Johnson's wedding pics to all your friends, in as mortifying a format as possible.
If you do decide to take a look, you'll find proposals on directors’ responsibilities, corporate reporting, auditing and more in an ambitious new framework which draws on the key recommendations of the Kingman and Brydon Reviews and work undertaken by the Competition and Markets Authority. Among the proposed reforms are plans to:
bring larger AIM companies and private companies within the existing regulatory regime, which includes a requirement to rotate auditors;
require FTSE350 companies to use smaller, "challenger" audit firms for a "meaningful" part of their audit;
establish a new regulator for the audit profession by creating the Audit, Reporting and Governance Authority (ARGA) as the successor body to the Financial Reporting Council (FRC);
give the new regulator greater powers to sanction directors for failures in connection with financial reporting;
create new obligations for directors and auditors to report on internal controls and their efficacy;
change the format for a company's annual report and accounts, including by introducing a "resilience statement"; and
empower companies to recover executive bonuses and share awards in certain circumstances.
Will the proposals be implemented and, if so, will they restore the trust eroded by corporate failures like Carillion, Thomas Cook and BHS? I don't know. Opposition is organised and vocal. Audit firms are understandably reluctant to be seen to be opposing regulatory reform proposals (which is not necessarily a good look for governance watchdogs) but Deloitte has called for "input... [from] investors, company directors, audit committee chairs and industry bodies at large". If I read between the lines correctly (and the great thing about being my own boss is that I can tell myself I do), auditors expect directors to come out against the tenor of the proposals, which would see a significant uptick in directors' responsibilities, and save them the heavy lifting. The Institute of Directors duly called on the government to create a code of conduct for directors which would be a “less legalistic” approach, saying:
It would be counterproductive if the legal and financial liabilities piled onto directors make the role excessively unattractive or risky for any capable individual to undertake.
Hmm. I'm tempted to ask whether that's why corporate Britain has such a poor record on Board diversity--too many people from diverse backgrounds who draw the line at being asked to report annually on the effectiveness of their company's internal control structure. No doubt.
On the other hand, scandals concerning the award of pandemic contracts and the Greensill lobbying affair are still reverberating in the public domain. In those circumstances, any decision to water down their own proposals on audit and governance would risk giving rise to the perception that HM Government has been captured by corporate interests at the expense of the interests of customers and employees.
All of which means that the policy is still in play. Things promise to heat up from the beginning of July as the industry's consultation feedback is published and the Government responds. You won't see a more skilful or strategic back-and-forth between two British players this Summer. I guarantee it.
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