Everyone talks the talk of good corporate governance these days. You wouldn’t last long in the IR game if you didn’t. But how many companies actually walk the talk? If the latest figures from London’s Pensions Investment Research Consultants (Pirc) are anything to go by, the answer would have to be very few indeed.
Pirc’s research shows that only 17 percent of the top 500 companies in the UK fully conform with the Combined Code on corporate governance. And the UK is frequently touted as a leader in corporate governance. Not exactly setting an example, is it?
Investors’ jitters might increase when they realize that the key weaknesses cited in the Pirc research relate to internal monitoring of the board’s actions, the responsibility for which, in the UK’s case, lies with independent directors.
The whole point of the corporate governance debate over the last decade has been to improve checks and balances on corporate behavior. Faced with the fact that internal independent monitoring is shot away in a bull market, what about the external groups charged with monitoring behavior? The unfortunate reality remains that most institutional investors don’t give two hoots as long as things are tripping along nicely. Admittedly they have got better at kicking up a huge fuss when things go wrong but that, by its very nature, is too little too late.
Other external checkers, such as lobby groups, have been slow to raise issues or court voting power which could have an effect. Indeed, outside of the US, few lobbyists seriously attempt to influence corporate voting as a means of achieving their goals.
Now don’t get me wrong, recent years have seen leaps and bounds being made in the corporate governance field in many markets. Many corporate excesses have undoubtedly been kept at bay. But determined rule breakers still find it all too easy to slip through the net: witness Greg Hutchings at Tomkins. And that cannot be good news for investor relations officers out there on the front line talking to investors.
Perhaps the problem lies in a lack of agreement on what constitutes good corporate governance. A quick analysis of major markets in Europe alone finds at least 30 major codes, diktats and regulations, ranging from Italy’s Draghi Commission to the Peters Report in the Netherlands. Add in the US and you’ll find at least another ten. That’s to say nothing of virtually every other market plus global overviews from the OECD and the like.
All claim to know the way forward in corporate governance terms. Inevitably there are massive – and significant – variations between each market. Pirc makes much of the fact that over a fifth of UK companies retain a combined chairman and chief executive, yet in the US that wouldn’t even be worth a mention. Likewise, many UK companies get a hard time for ballooning executive pay but US investors hardly raise an eyebrow.
This all seems a tad outdated in a world where most larger companies are internationally-owned and M&A deals frequently cross borders. Admittedly, some efforts have already been made to draw together the various national approaches into a universal whole, such as Ira Millstein’s report for the OECD, mentioned above, and the continued work of the International Corporate Governance Network. Holly Gregory’s detailed reports on behalf of lawyers Weil Gotshal & Manges are also worth a look.
But these efforts lack backing and their existence is hardly even acknowledged by most IROs let alone the investors they meet. Roll on the day when internationally acceptable corporate governance guidelines are implemented by stock exchanges and regulators around the world. IROs would then know where they stand when they embark on a 20 country roadshow.
Don’t hold your breath, though. Global guidelines are kind of frustrating to pin down. Just ask the IASC.
