Speech by Baroness Hogg at 20th Anniversary of the Corporate Governance Code Event
News types: Speeches
Published: 6 November 2012
Find below the plain text version of Baroness Hogg's speech at The FRC's 20th Anniversary of the Corporate Governance Code Event on 6th November 2012.
I should like to add my welcome to that of Chris Gibson Smith and begin by thanking the London Stock Exchange for their hospitality. We are very pleased to be here and hosting this event together, because the Governance Code and the whole concept of comply or explain is so central to our listed equity market and at the very heart of the brand of the City of London. Our friends at the London Stock Exchange have always recognised this, and it seems right that we should be celebrating the 20th anniversary of the Code together.
And it’s undoubtedly a celebration. In the slim volume of essays we collected for today, a wide range of distinguished authors take the view that successive codes have achieved a good deal. Sir Roger Carr sums up this view, when he says the code:
“ will never beat criminal intent but continues to guide the inexperienced, focus the ambivalent and control the adventurous. Most importantly, it encourages adherence to the spirit of the rules rather than simple obedience to the letter of the law.”
But there are also challenges. The impact of good governance is cumulative, as Keith Skeoch suggests. That doesn’t, however, mean that we need to keep on adding to the Code. The Corporate Governance Code is a living document with a history of success in pushing out the boundaries of best practice, such as the independence of audit committees, the frequencies of director election, the separation of Chairman and Chief Executive, and most recently, testing the quality of audit by retendering. Each new version will, therefore, probably have something in it that some directors won’t like. But it isn’t, and mustn’t become, a convenient Christmas tree on which politicians can hang proposals that they would like to make law but don’t want to take through the Houses of Parliament – or on which lobby groups can hang social policies which, however worthy, have only indirect connection with corporate governance.
Our protection from these tendencies at the FRC is that we always consider and consult and don’t make changes more frequently than every two years. And if we find we don’t need to change the Code, in my book that’s a mark of success – a sign that we had thought ahead and embedded principles that stood the test of time.
But the key challenge is: how do we do the “Code thing”, how do we follow its principles, better? Some of our contributors question the quality of explanations for non-compliance with the provisions of the code. This is a crucial issue. Feeble explanations bring “comply or explain” into disrepute, not least in the European arena, where there is still a battle to be fought for the UK approach. In the new Code, the FRC has tried to nudge preparers of accounts into something better, and will be watching the response.
Then there are questions about whether more can be done through governance to stave off crises like we have seen in banking, or other cases of what John Plender calls un-arrested decline.
And, of course, there is the whole new challenge of the other side of the coin: the application of the new Stewardship Code for investors, which we have also just revised, and whose signatories will be judged by the extent to which they up the quality of engagement with companies.
Two decades from now, I hope we can look back and see a coming-together of these two strands of accountability to the ultimate owners of the shares, the providers of risk capital. This is only the end of the beginning of a journey Sir Adrian Cadbury started us on two decades ago. That followed his report into governance after the Polly Peck and Maxwell affairs, and none of this could have happened without him.
So we are delighted to be able to welcome you today, Adrian, and look forward very much to what you have to say.
And it’s undoubtedly a celebration. In the slim volume of essays we collected for today, a wide range of distinguished authors take the view that successive codes have achieved a good deal. Sir Roger Carr sums up this view, when he says the code:
“ will never beat criminal intent but continues to guide the inexperienced, focus the ambivalent and control the adventurous. Most importantly, it encourages adherence to the spirit of the rules rather than simple obedience to the letter of the law.”
But there are also challenges. The impact of good governance is cumulative, as Keith Skeoch suggests. That doesn’t, however, mean that we need to keep on adding to the Code. The Corporate Governance Code is a living document with a history of success in pushing out the boundaries of best practice, such as the independence of audit committees, the frequencies of director election, the separation of Chairman and Chief Executive, and most recently, testing the quality of audit by retendering. Each new version will, therefore, probably have something in it that some directors won’t like. But it isn’t, and mustn’t become, a convenient Christmas tree on which politicians can hang proposals that they would like to make law but don’t want to take through the Houses of Parliament – or on which lobby groups can hang social policies which, however worthy, have only indirect connection with corporate governance.
Our protection from these tendencies at the FRC is that we always consider and consult and don’t make changes more frequently than every two years. And if we find we don’t need to change the Code, in my book that’s a mark of success – a sign that we had thought ahead and embedded principles that stood the test of time.
But the key challenge is: how do we do the “Code thing”, how do we follow its principles, better? Some of our contributors question the quality of explanations for non-compliance with the provisions of the code. This is a crucial issue. Feeble explanations bring “comply or explain” into disrepute, not least in the European arena, where there is still a battle to be fought for the UK approach. In the new Code, the FRC has tried to nudge preparers of accounts into something better, and will be watching the response.
Then there are questions about whether more can be done through governance to stave off crises like we have seen in banking, or other cases of what John Plender calls un-arrested decline.
And, of course, there is the whole new challenge of the other side of the coin: the application of the new Stewardship Code for investors, which we have also just revised, and whose signatories will be judged by the extent to which they up the quality of engagement with companies.
Two decades from now, I hope we can look back and see a coming-together of these two strands of accountability to the ultimate owners of the shares, the providers of risk capital. This is only the end of the beginning of a journey Sir Adrian Cadbury started us on two decades ago. That followed his report into governance after the Polly Peck and Maxwell affairs, and none of this could have happened without him.
So we are delighted to be able to welcome you today, Adrian, and look forward very much to what you have to say.