Editorial - October 2009

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A time for change

Life used to be simple: the only certainties in life were death and taxes. Recently we have added climate change (whatever happens in Denmark, climate change is now here), and I suggest we can add a fourth certainty: there will be no change to corporate governance if we give incumbent chairmen and directors an effective right of veto – which is what they seem to have.

When I attended a recent meeting at the EC on Corporate Governance in Financial Institutions, there was without a doubt recognition from many that we face a tipping point. Either we actively seek out change in corporate governance right now or we face the risk of returning to ‘situation normal’ and our comfortable old ways. I strongly believe that ‘comply or explain’ is now doomed to failure in that it embeds inertia. While the phrase may have ushered in a sea-change since Sir Adrian Cadbury first exposed us to those words in the UK, it is now past its sell-by-date.We need to see a new fiduciary duty for directors to discharge their corporate governance responsibilities with due and diligent care. And this duty needs to be set higher than the normal low level bar accorded to directors’ duties by the courts.

There is one glimmer of light on the horizon, where real change in corporate governance might happen, and that is the area of what Sir David Walker calls Board Risk Committees. If they do five things (make sure the approach to risk is right; ensure there is an ethical approach to business; review risk management maturity; ensure that there is a risk and assurance framework fit for purpose; and finally address the needs for sufficient resources for risk management, including people and technology) then change might happen.

Changes to corporate governance, even the radical sort that I propose, might not eliminate the risk of further global systemic failures. But what we can be pretty sure of is that if we do not change, then we will certainly see further corporate governance failures in the next ten years.

Better make that five certainties in this life.

Richard Anderson, an independent Governance, Risk and Assurance Board adviser, see http://randerson-assocs.co.uk

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