RegulationOct 22 2014

Deliberate non-compliance is not the cause of corporate governance failure: RLAM

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Leadership and succession issues are often the “root cause” of corporate governance failure, the corporate governance manager for Royal London Asset Management has warned.

Speaking at the National Association of Pension Funds’ annual conference in Liverpool during a fringe meeting called ‘Holding your board to account’, Ashley Hamilton Claxton said that culture, leadership and succession were the problem, rather than senior managers deliberately not complying with the UK Corporate Governance Code.

She took as her case study Tesco, stating that the blue-chip supermarket had complied with the UK Corporate Governance rules in that it had an independent board, independent auditor and an “uncontroversial” remuneration scheme.

However, Ms Hamilton Claxton said: “Corporate governance failed due to executive leadership issues, non-executive director skills and culture.”

She also pointed to an initiative at Barclays, which has been focusing on cultural reform as part of its ‘Citizenship Lens’ initiative. This is a values-based decision-making tool being rolled out to ask executives to consider the effect of critical business and product decisions on the bank, its culture, values and relationships with key stakeholders.

Background Box

In September, Tesco issued a profits warning after it was revealed the company had presented an overstatement of income and an understatement of costs in its statement to the market, causing the share price to tumble.

A few days after the news broke, the Financial Reporting Council issued a statement that it would be “monitoring” the situation following Tesco’s announcement closely. The statement read: “The FRC has disciplinary powers in relation to misconduct by accountants and, through the Financial Reporting Review Panel, can also require a company to restate its financial statements.

“The FRC does not have powers to monitor or require restatement of unaudited trading statements. It will consider the outcome of the investigation announced by the company and determine whether it should take regulatory action.”