The regulation of corporate governance practices in the U.K. is “so light touch as to have very little impact at all,” according to the Association of Chartered Certified Accountants. There is “a very clear need for more robust regulation in this area,” the global accountancy body said.
The ACCA said regulators or the government should decide which parts of the country’s Combined Code on Corporate Governance should be made mandatory, either through market listing rules, by regulation, or by law. Currently the Code operates on a voluntary “comply or explain basis.”
Corporate governance in general, and not just within financial institutions, “has let us down,” said the ACCA submitting its formal response to the Financial Reporting Council’s review of how well the Code is working.
Professor Andrew Chambers, chair of the ACCA’s Corporate Governance Committee, said that various failures have been blamed for the current economic crisis, but corporate governance failures are chief among them.
“Fine tuning of the current system will not resolve the problems, since it has not done so in the past,” said Chambers.
The current governance model relies on shareholders and their representative bodies to enforce high standards by challenging boards. But they are “not sufficiently organized or incentivized” to perform that role, said Chambers. He added: “Shareholders themselves often encourage companies to take excessive risks. Therefore, regulation must assume responsibility for ensuring the effective adoption of corporate governance rules.”
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