Editorial - November 2009

<< GO BACK | NOVEMBER 2009 | ISSUE NO 192

A two-way street

In 2006 that great pioneer of governance, Jonathan Charkham, said: `even a megaton of governance is no substitute for invention, entrepreneurial skill, originality and sheer management competence
and integrity’.

His words were prescient and, if anything, have even more resonance today.

Both the Walker Review and the FRC review of the Combined Code focused on the fact that, however much regulation there is, ultimately good governance comes down to the behaviour and integrity of the individuals
involved.

Good governance, done well, can not only help to avoid destruction of value and corporate collapse, it can actually add value and ensure the long term sustainability of the business.

If the right governance mechanics are in place, it helps companies to address the issues that really matter, and to be aware of and deal effectively with the risks they need to.

Good governance though is a two-way street.

Boards of directors, especially non-executive directors, need to ensure that they are equipped to carry out the role demanded of them. They must have the knowledge, experience, skills and personal attributes needed by the particular companies whose boards they sit on, at the particular stage of development those companies are in.

Equally, investors need to make sure that they are facing up to their responsibilities and are engaging in a positive and pro-active way with the companies they are investing in.

In a recent Report*, which will be covered in detail in next month’s issue, one FTSE 250 chairman commented: ‘I have spent more time speaking to shareholders in the last 12 months than in the preceding 12 years.’

No-one is suggesting that the way forward is an easy one, but if there is more meaningful engagement between boards and their major investors, surely it can only be a good thing?

Lesley Stephenson is Publisher of Governance and Editor of the Financial Times Non-Executive Directors’ Club.

*Board Oversight in Difficult Times, All Party Parliamentary Corporate Governance Group

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