The Future of Governance Simon Osborne FCIS Chief Executive, ICSA: - - PowerPoint PPT Presentation

The Future of Governance

Simon Osborne FCIS Chief Executive, ICSA: The Governance Institute

The future of governance

The “Future of Governance” is the title of a series of thought leadership papers looking at some of the principal issues in the governance environment – launched 15th February 2017 in London. Purpose of this series: to encourage reflection; to consider the issues dispassionately; and then to look at what really needs to be done. Approach: asking authors to think radically about governance; looking at what we are seeking to achieve and how best that may be done; rather than at how the current model may be improved Chris Hodge : “Untangling corporate governance”. The current UK corporate governance model and whether it achieves what it is intended to achieve.

Untangling corporate governance

The future of governance

Cadbury Committee definition The Committee on the Financial Aspects of Corporate Governance: ‘the system by which companies are directed and controlled’ G20/OECD Principles of Corporate Governance 2015 ‘To help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies.’

The future of governance

UK Business, Energy & Industrial Strategy Dept. Green Paper, November 2016 In her introduction to the Green Paper, the UK Prime Minister says that ‘both the Government and big business must rise to the challenge of restoring faith in what they do, and in the power of the market economy to deliver growth, opportunity and choice for all’. In the 25 years since the Cadbury Committee reported, our expectation of corporate governance has gone from ‘improving control and accountability’ to ‘restoring faith in capitalism’. That is clearly a much bigger job – both for boards of companies and for the regulatory framework on which we rely.

The future of governance

Back in 1992, several features of the UK market at the time led the Cadbury Committee to believe that these arrangements had a chance of being successful, including:

relatively strong shareholder rights, which gave shareholders the ability to hold the board to account if they felt it necessary; the majority of companies had dispersed ownership, with few controlling shareholders; and there was a critical mass of shareholders who would be willing to carry out the enforcement role.

The majority of shares were owned by UK based investors such as pension funds and insurance companies who would therefore see it as being in their clients’ interest to invest in well-governed companies. That is no longer necessarily the case.

The future of governance

The future of governance

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Reported compliance rates with the UK Corporate Governance Code remain high, even though its scope and expectations have increased substantially since it was first introduced. In 2016 over 90% of companies complied with all but one or two of its 54

• provisions. The evidence is that most companies respond rapidly to

changes to the Code. This suggests that, over time, the Code has acquired a momentum that enables it to overcome any shortcomings in the enforcement mechanism.

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Achieving the broader purpose In the UK Prime Minister’s introduction to the recent Green Paper, she talks about the need to (1) strengthen decision making and accountability; (2) restore faith in big business; and (3) deliver

• pportunity and choice for all.

The first of these objectives is the reason our current framework was established; the other two express the expectation that corporate governance can prevent, or at least reduce, the sort of behaviour that led to the loss of faith in business, and can contribute to public policy

• bjectives. Is that realistic?

The future of governance

Restoring faith in business There has been much talk in the years since the financial crisis of the need to rebuild trust in business - and rightly so. For policy makers it is a difficult objective to deliver. The ability to exert any direct influence on the outcome is severely limited – trust cannot be regulated for; it has to be earned. The most one can hope to do is to take actions which will encourage companies and their directors to adopt and display the sort of behaviours which may, in time, earn back that trust. As the FRC noted in its 2016 report on corporate culture, ‘while legislation, regulation and codes influence individual and corporate behaviour, they do not ultimately control it’.

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Restoring faith in business There is a tendency to argue every time a company behaves in a way that impacts adversely on one or another interest, that it represents a failure of public policy or a failure of governance. Blaming each example on systemic weaknesses encourages the assumption that the system can be adjusted to prevent them from being

• repeated. Branding them as governance failures encourages the

assumption that adjusting the apparatus that has been put in place to regulate governance is the way to prevent them. Revising the Code, or adding more reporting requirements or voting rights, may often be the right response. But sometimes it will not be.

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Restoring faith in business Most corporate scandals are not examples of systemic failure. Most are simply examples of poor judgment, bad behaviour or negligence. Their root causes lie in human nature – individual and collective foolishness, hubris, laziness or greed – which are beyond remedy by regulation. In other areas of public policy, the human factor is explicitly recognised. Nobody assumes that the rules will always be obeyed. Sanctions for disobeying them are an integral part of the policy approach, and serve as both a deterrent and a punishment. The governance framework does not include adequate sanctions for punishing bad behaviour by directors.

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Delivering opportunity and choice for all The regulatory framework for corporate governance is never, on its own, going to be sufficient to deliver ‘opportunity and choice for all’ or other public policy objectives. The first and most obvious shortcoming is that – at present – it applies

• nly to listed companies.

The second shortcoming is that the enforcement role rests with shareholders but they are only responsible to their clients and beneficiaries, not to society at large.

The future of governance

Delivering opportunity and choice for all In 1992 – when 70% of shares were owned by UK pension funds, insurance companies and individuals – it could be argued that shareholders represented the public interest. Yet looking at the UK ownership base today, with over 50% of shares owned by overseas investors, it would be illogical to do so. These interests may often coincide but that will not always be the

• case. If stakeholders do not have the ability meaningfully to

represent their own interests, the answer is not to ask shareholders to do so on their behalf.

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Delivering opportunity and choice for all Furthermore, the current governance framework relies heavily on reporting for its effectiveness. Policy-makers in the UK and internationally have too often been guilty of assuming that a requirement to report on something would be sufficient to bring about change. Thus, reporting has been overused as a policy solution. Reporting can be an effective way of bringing about change, but only when there are consequences associated with failure. If there are no consequences, reporting in itself achieves nothing.

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Delivering opportunity and choice for all There is no better example of this misdiagnosis than reporting on directors’ remuneration.

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Delivering opportunity and choice for all It is over 20 years since the Greenbury report first recommended that UK listed companies report to their shareholders on this issue. Since then the reporting and voting regimes have been regularly strengthened – and, it seems, may be about to be strengthened further. But in over 20 years this has done nothing to slow the increase in executive pay – some would argue it has contributed to it – or to reduce income inequality. There is no evidence to support the view that those objectives can now be achieved by adding more reporting requirements and voting rights.

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Strengthening decision-making and accountability There is, however, one public policy objective for which the governance framework in the listed sector is well suited, and that is the one for which it was originally designed – what the Green Paper calls “strengthening decision-making and accountability”. This begs the question: If it is considered an important enough

• bjective to justify government action in relation to listed companies,

should that not also be true for other sectors or large organisations whose activities have a significant public impact?

The future of governance

Conclusions What actions should be taken to achieve the three interrelated, but separate, objectives which are now associated with corporate governance? To achieve ‘opportunity and choice for all’, we need to recognise that, while listed companies can and must contribute to this and other public policy objectives, they cannot achieve them on their own. Programmes addressing issues such as income inequality and equal

• pportunities need to be extended to all sectors of the economy –

where this is not already the case – if they are to make a major

• difference. Addressing these issues only in the listed sector limits

both the ambition and the impact.

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We should review whether the approaches that have been used within the listed sector are the most effective ways of promoting broad policy

• bjectives.

Current reporting and voting requirements have done little or nothing to address income inequality; and adding more of the same is unlikely to do so. Greater attention should be paid to the standards of governance in other sectors of the economy, where practices are generally less developed than in the listed sector. This would help to reduce the risk of

• rganisations failing or taking actions that impact adversely on the

public and, in the public sector, of ensuring taxpayer’s money is well managed.

The future of governance

The UK Government’s focus on the governance of large private companies is

• welcome. There are, however, many other sectors and activities where paying

more attention to raising standards is in the public interest – the education sector, NHS trusts and large infrastructure projects to name just a few. Paying greater attention to other sectors of the economy does not mean letting listed companies off the hook. Their boards must continue to be challenged to demonstrate good governance and be held accountable for their effectiveness. The standards set out in the Code for the formal aspects of governance are among the most robust in the world and, with the FRC’s latest data showing

• ver 90% compliance in 2016, in most cases further tweaking of those

standards is likely to bring about only marginal improvements.

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It is hard to resist the conclusion of Professor Bob Garrett that “corporate governance is being sold by politicians as the silver bullet to an over- expectant, under-educated and gullible public”; and that “little can be done for the simple reason that those making the most noise know little of what effective corporate governance means in practice”. They rely increasingly on legislation and regulations but human issues of behaviours and values cannot be solved by increasing codes and reporting

• bligations.

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Finally, we need to address the issues of sanctions and enforcement. While good governance standards and scrutiny by shareholders and

• ther stakeholders may reduce the risk of bad behaviour or poor

decisions, they cannot eliminate the human failings that cause them.

The future of governance

Sanctions and enforcement At present, there is no means (except via the so-called “Court of Public Opinion”) of effectively and appropriately punishing actions by directors which have a significant adverse impact on their shareholders, stakeholders or on society in general. Reporting to and monitoring by shareholders are not adequate for these purposes, and were never designed to be. Any sanctions must, of course, be proportionate and justified. But that does not reduce the need for them.

The future of governance

Sanctions Lower the burden of proof for director disqualification proceedings Extend the criminal law to address more breaches of regulatory law and anti-competitive conduct Make greater use of deferred prosecution agreements BUT:

• sanctions which are excessive or unenforceable in practice lose

respect and may threaten entrepreneurship

• humans’ capacity for getting round rules knows no limits!

Thought leadership from ICSA

How will the future of governance impact governance in Barbados

Connie Smith October 17, 2017

Outline

• Brief look at Governance
• Types of governance concerns
• What are our concerns
• What is on the Board’s agenda as it relates to governance

The Future of Governance.Barbados.October 2017 2

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What is Good Governance?

https://www.youtube.com/watch?v=GrCyHrv8HeQ https://www.youtube.com/watch?v=q_c91Dmyo1I

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What is happening in the world & in Barbados

We are witnessing a lack of trust in governance models around the world, including right here in Barbados and the wider Caribbean. This comes from the perception that our leaders are unable to solve challenges, resolve conflicts, deal with threats and generally behave in an accountable manner. What this creates is apathy and a sense of alienation among the population. But more ominously, it leaves a vacuum for other actors – those with other interests in mind than the common good – to fill. Decision-making processes and structures need to and must change.

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Digital Transformation

• It is not the first or the last time governance models have had to be rethought.
• Today, the progress of digital technology is altering power structures as it

reshapes individuals, organizations and societies.

• Business leaders viewed digital as being more about mobile phones and other

electronic gadgets.

• Business Innovations permeating everything around us.
• Complete disruption of well established business models
• Creating unprecedented challenges …. and opportunities
• One of the most important strategic issues and should be on every board’s

agenda

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What is Digital Transformation?

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Digital transformation is the use of digital technologies to enable innovation and

• creativity. Digital transformation is today’s path to improving business processes,

and a means of radically improve the way you operate or a combination of both. Recognising the need of digital technology adoption is absolutely fundamental to business success

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Key Factors to Consider:

Key factors to consider during the digital transformation journey:

• Role of governance
• Strategic priorities
• New technologies
• New digital channels
• Adoption approach
• Two way communication (external as well as internal)

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Role of Governance

The foundation of digital transformation should be based on strong leadership, governance, collaboration, innovation and efficiency. Governance is a central component and key factor for successful digital transformation. Defining the overall goal and taking a top down approach for buy-in from stakeholders is crucial.

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What should boards be asking?

• 1. Do we even have a digital strategy?
• 2. What is (or should be) our company’s digital transformation strategy?
• 3. How does this digital strategy fit with the organisation’s overall long term

success

• 4. Is the company using digital technology to drive transformation?
• 5. Is the existing business at risk of disruption, and if yes, how can we be our own

disrupters?

• 6. What are the risks of slavishly sticking to the status quo
• 7. What will be the financial impact of this disruption?

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What should boards be asking?

• 8. When will we be able to see the benefits or a return on the investment?
• 9. Do we have the right people to achieve our digital ambitions?

10.What about cybersecurity?

The Future of Governance.Barbados.October 2017 12

Thank you

www.icsa.org.uk

Im proving board effectiveness in sports bodies

Simon Osborne FCIS Chief Executive, ICSA: The Governance Institute

Im portance of good governance

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Definitions of governance - sport

Governance – ‘The framework and culture within which a sports body sets policy, delivers its strategic objectives, engages with stakeholders, monitors performance, evaluates and manages risk and reports to its constituents on its activities and progress including the delivery of effective, sustainable and proportionate sports policy and regulation’.

EU Expert Group on Good Governance, 2013

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Governance vs. m anagem ent

A Code for Sports Governance: Boards shall ‘maintain and demonstrate a clear division between the Board’s management and oversight role and the executive’s operational role’. Requirement 1.1 (C) Cadbury Report, 1992: ‘The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management

• f the business and reporting to shareholders on their stewardship’.

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Role of the chair

Key functions:

• Clarity of vision in achieving stated goals
• Setting clear expectations re. culture, values and behaviour
• Creating the conditions for the board and individual members
• Style and tone of meetings
• Focused agenda
• Flow of information
• Meeting conduct and participation
• Board member evaluation
• Relations and communications with relevant stakeholders

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Role of the board m em ber

• Understanding the function of the board and board members’ role
• Formal, comprehensive & tailored induction
• Essential documents – staged over time
• Buddy up with current board member
• Site visits – staff, members, clubs, participants, supporters
• Ongoing development
• Command of topical and relevant issues
• Training
• Realistic expectations of commitment involved
• Upholding standards of probity and integrity

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Hallm arks of a successful board

• Will promote and develop and embody a collective vision that mirrors the
• rganisation’s purpose
• Internal operating climate, culture and values aligned to vision
• Board provides good governance and leadership by:
• Understanding its role and duties
• Ensuring delivery of organisational purpose
• Working effectively as individuals and team
• Exercising effective control
• Providing scrutiny and challenge – breaking down group think
• Being open and accountable

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Board com position

• Skill sets – strategic recruitment
• Diversity – in the widest sense
• Ability and preparedness to challenge
• Ongoing development
• Skills audit
• Staggered terms – balancing renewal with continuity
• Training

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Board com position

Key attributes of board members:

• Critical assessment
• Sound judgement
• Courage
• Independence of thought
• Openness
• Honesty
• Tact
• Humility
• Flexibility in thinking
• Ability to listen
• Ability to forge productive relationships
• Ability to inspire trust
• Commitment

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Principles of sound decision m aking

Board members should:

• Act within their powers and be able to defend decisions in terms of powers and

duties

• Act in the best interests of the organisation
• Be appropriately informed – quality board packs, professional advice
• Achieve timely closure

Board members should not:

• Be swayed by personal interests or irrelevant factors
• Revisit decisions unnecessarily

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Factors inhibiting effective decision m aking

Many factors in poor decision making are predictable and preventable:

• Dominant personalities or groups
• Failure to consider reputational implications
• Viewing board as rubber stamp
• Complacent or intransigent attitudes
• Inadequate information and analysis
• Conflicts of interest
• Emotional attachment
• Inappropriate reliance on previous experience and decisions

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Regulation can influence culture…to a degree

‘while legislation, regulation and codes influence individual and corporate behaviour, they do not ultimately control it’. FRC, Corporate culture and the role of boards, 2016 ‘behaviour is determined not only by rules, but also by the culture of the entity concerned – and in the worst cases, that culture can be one of wilfully ignoring and seeking to bypass rules….’ ICSA, Cultural markers

Organisational culture

‘One of the key roles of the board includes establishing the culture, values and ethics of the

• company. It is important that the board sets the correct ‘tone from the top’. The directors

should lead by example and ensure good standards of behaviour permeate throughout all levels of the organisation’. FRC, UK Corporate Governance Code, 2016 ‘A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value....Directors should not wait for a crisis before they focus on company culture’. FRC, Corporate culture and the role of boards, 2016

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What is ‘culture’?

‘The way things are done around here’

• Customs, values and beliefs evident in:
• Those working in or on behalf of the organisation – proper and ethical

behaviour

• All of the organisation’s activities
• Goes beyond legal and regulatory compliance
• Prevents people from making bad choices in difficult times

Code for Sports Governance - culture

‘Organisations shall uphold high standards of integrity, and engage in regular and effective evaluation to drive continuous improvement.’ A Code for Sports Governance, Principle 4 Rationale: ‘Having the right values embedded in the culture of the organisation helps protect public investment and also enhances the reputation of the organisation, earning stakeholder trust. Constantly seeking to improve makes an organisation swift to respond to new challenges and opportunities.’

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Thank you

ICSA update and qualifications

Theresa Minnie, Head Outreach

ICSA qualifications

Financial compliance qualifications

• International Finance and Administration (IFA) – Level 4 and Level 5
• Certificate in Trust and Fund Administration - Level 5

Specialist governance qualifications

• Certificate in Corporate Governance – Level 4
• Certificate in Sports Governance – Level 4
• Certificate in Charity Law and Governance – Level 4
• Advanced Certificate in Corporate Governance - Level 6
• Advanced Certificate in Health Service Governance - Level 6

Chartered qualification Chartered Secretaries Qualifying Scheme (CSQS) – Level 6 and Level 7 Accredited postgraduate qualifications

New qualifications under development

Launching 2018

• Level 4 Certificate in Corporate Governance – launch January 2018
• Level 4 Certificate in Sports Governance – launch January 2018
• Level 4 Certificate in Academy Governance – launch mid 2018
• ICSA Qualifying Programme – Level 4 Foundation Programme – launch

mid 2018

UKRIAT Division - current CSQS programme and module structure

Financial Decision Making Corporate Law Applied Business Law Financial Reporting and Analysis

One of:

Strategy in Practice Corporate Secretarial Practice Health Service Governance Corporate Governance

Stage 2 Stage 1 Level 6 modules = 150 learning hours Level 7 modules = 150 learning hours

Case Study

CSQS under review

• First introduced in 2009
• Eight modules
• Open entry
• Cannot step-on step-off programme
• Must sit and pass/receive exemptions from all eight modules to gain the

qualification

• Do not have to complete modules in order
• Final module is an overall case study covering all topics

What is changing…………….

What is changing?

• Proposed introduction date - mid 2019
• Seven modules
• No longer open entry
• Completion of Level 4 Foundation Programme or a law, finance or

business-related degree or HND in Business/Law/Accounting

• Changes to exemption policy
• Exit points if you wish to step-off the programme
• Will be required to complete modules at each level before progressing

What is the proposed structure…………….

Proposed new qualifying programme for UKRIAT Division students

Level 4 programme = 200 learning hours + 1 exam 60 learning hours (30%) 60 learning hours (30%) 50 learning hours (25%) 30 learning hours (15%)

Module 5: Risk Management Module 4: Interpreting Financial and Accounting Information Module 3: Company Law

One of:

Module F4: Understanding Financial and Accounting Information Module F3: Introduction to Law Module F2: Principles of Company Compliance and Administration Module F1: Introducing the Business Environment Module 6: Development of Strategy Module 7: Boardroom Dynamics 1B: Health Service Governance 1C: Not-for-profit Governance 1A: Corporate Governance

Part 2 (Level 7) Part 1 (Level 6) Foundation Programme Level 4 Level 6 modules = 150 learning hours each + 1 exam per module Level 7 modules = 200 learning hours each + 1 exam per module

Module 2: Company Compliance and Administration

(Corporate Secretarial Practice)

Proposed progression and exit routes for UKRIAT students (for Chartered Secretary AND Chartered Governance Professional)

Fellow (FCIS) Associate (ACIS)

(8+ years of professional experience) (6+ years of professional experience)

GradICSA

Step off

Level 6 exit qualification Level 7 Programme Level 6 Programme Level 4 Foundation Programme Business/Finance/ Law-related degree

• r Higher National

Diploma

OR Level 4 exit qualification Step off

What happens if I haven’t finished CSQS?

• Continue as normal
• CSQS modules already completed will be transitioned across to the

new programme

• Proposed exceptions are:-
• Applied Business Law and Corporate Law must complete both

modules to be able to transfer credit

• Financial Reporting and Analysis and Financial Decision Making –

must complete both modules to be able to transfer credit

Want to start study CSQS?

• Strongly recommend you start with
• Corporate Governance
• Corporate Secretarial Practice
• Strategy in Practice
• Any other modules please call our Student Support Team for

advice

Thank you