Monday, December 06, 2010

LAPFF Conference 2010: Roundtable on UK Corporate Governance Code.

Shareholders were asleep at the wheel before the financial crisis” Phil Triggs (Warwickshire LGPS) agreed with Lord Paul Myners that this was true. Other members of this panel were Alan MacDougal (PIRC) and Cllr Neil Fletcher (NE Scotland LGPS). My notes are not great on this session so I will report what I found interesting and not attribute to individuals.

It was agreed that very few pundits predicted the crash beforehand and many say they did now only with the benefit of 20:20 hindsight.

Check FRC site for further information on the Code. “The UK Corporate Governance Code (formerly the Combined Code) sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.

All companies ...of equity shares in the UK are required report on how they have applied the Combined Code in their annual report and accounts.... The Code contains broad principles and more specific provisions...companies are required to report on how they have applied the main principles of the Code, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation...the FRC issued a new edition of the Code which will apply ..on or after 29 June 2010”.

A problem with this Code is that it is addressing yesterday problems not what we will face in next 5 years? How can we really hold the directors of banks accountable and make sure that their oversight in the future is far more effective?

There is some controversy about how much the “bonus culture” was to blame for the financial crisis? There is evidence - such as the bonus problems within UBS for example. But how do you determine outcomes of behaviour?

There is an increased focus on below board level remuneration as being more important. Many employees in financial institutions are paid far, far more than the Board. Issue of the importance of Board oversight. Do they understand what is going on in their companies? The importance of Board diversity. Lot of evidence that dissent and challenge is good. Get any group of people together and you find if there is an extreme view challenging the consensus this results in a better outcome. Not enough boards challenge in this way.

Can having more women on boards change this? There is no hard evidence. But there are clear different styles of operation when you have more women on Boards. It does result in a change in the “group think” amongst men.

We constantly ask fund managers about their best practice but what about shareholders best practice?

Consensus that the Codes do work and have changed behaviour and practice. Nowadays there is no real discussion about whether or not you need to have independent executive directors for example. There are now very few now dominant CEO’s who don’t brook any opposition. But in the US this consensus does not exist.

Issue of “Governance imperialism” – the UK may be a world leader on good financial governance but is it just a modern form of imperialism for us to tell other countries (particularly ex-colonies) how to run their affairs according to our western norms and values? This is likely to be increasing issue in the future.

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