IoD calls for directors' reform to reduce 'shortcomings'
Corporate Governance reforms are right stepWhile the Institute of Directors (IoD) highlighted "numerous problems" that the UK needed to rectify in order to remain competitive, one of its recent manifesto's recommendations related to corporate governance and the role of directors.
The IoD said that the recent financial crisis in Britain "has revealed significant shortcomings in financial sector governance".
Whilst calling for regulatory reform on the part of the government on the issue and for public spending and public services cutbacks, it also called for reform of corporate governance and more suitable directors looking after a company's needs.
In response to a revised UK Corporate Governance Code, published at the end of last month, the IoD said it was "broadly supportive" of the changes but wanted them to go further and push directors to better understand their companies.
It called not only for directors to have "appropriate knowledge" of the company but also asked that directors should have "knowledge of applied corporate governance".
In addition, the further recommendation of an annual election of a chairman was said to "encourage shareholders to engage with the board on its overall governance stance and on specific governance issues".
Institute director general Miles Templeman believes the reforms put forward by the code will improve the relationship between the boardroom and the rest of a company for the future but confesses that applying it is not straightforward.
Mr Templeman said: "We now have a well-crafted Code. The key challenge in the coming years is to find ways to transmit the wording of [the] code into the day-to-day practice of individual directors."
What seems apparent not only from the reformed code but also the thoughts and recommendations of the IoD is that the reforms may have been necessary.
As the institute's manifesto hints, some directors and business heads have arguably not performed to the requirements of large organisations during the financial crisis.
That the Financial Reporting Council's revised code is "prescriptive" according to the IoD possibly reflected on flaws in senior management governance being exposed.
Back in 2005, David Prosser told the Times that he believed fund managers should be less "soft-hearted" with company directors and less "diplomatic" when the need arises.
The argument could be that directors, in any scenario, need to better understand their company and its needs, hence the IoD calls for boardroom reforms.
The best lead seems to come from telecoms giant Deutsche Telekom which implemented a tougher employee regime to weed out some in permanent placement who were not cutting it with T-Mobile.
Ian Pitcher, the man in the company's senior HR job in the UK, said: "We felt we had to raise the bar." As a result Deutsche Telekom made significant savings in its UK operations.
Would a similar tough approach to boardrooms, from shareholders, help companies to make savings throughout their supply chains and better prepare organisations for growth in the future?
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Corporate Governance reforms are right step
*IOD Manifesto PDF
Updated: 17 March 2010.
Categories: finance-and-accounting, london, market-and-industry-news.
