In an interview this morning on Radio 4’s Today programme, the former M&S chairman said that the concept of “comply or explain” - which was introduced by Sir Adrian Cadbury 25 years ago to allow listed companies to explain to their shareholders why they had not complied with aspects of the corporate governance code - was not working properly.
“It’s been possible to get away with pretty broad and sweeping explanations that have not been challenged. So there are some big issues that still need to be addressed,” he added.
The problem, he said, lay with shareholders and the fragmentation of ownership. “Cadbury did not focus at all on the roles, duties and obligations of the shareholders and that is where the failing is happening at the moment. It’s not happening within the boards of companies as much as among the people to whom you explain.”
Nobody owned enough of a company any more to be “put out enough to really dig in and find out what’s wrong”.
Lord Myners dismissed the idea of extending the corporate governance code to large private companies, such as BHS, as too difficult.
I think it would be much better that the FRC, which controls the Cadbury code, which is rather a timid body, should get stronger. It should say, ‘We have to go further, we have to show a little more muscle and we have to stand up to government and say we need legal change in a number of areas to strengthen corporate governance.’ Simon Collins, UK chairman at KPMG
Last month, the FRC itself called for stronger and wider powers to enable it to monitor corporate governance reporting better.
In its response to the government’s Green Paper on corporate governance, it asked for corporate governance monitoring generally to be brought within its ambit so it would be “able to consider the quality and integrity of such reporting and engage with companies accordingly”
Responding to Lord Myners’ call for “a little stiffening” to be added to the FRC’s corporate governance powers, an FRC spokesperson said, “The corporate governance code’s ‘comply or explain’ approach has allowed the FRC to respond confidently and effectively to evolving market circumstances, which prescriptive hard rules often cannot.
“Our latest monitoring report on the code shows high compliance with its provisions but when boards choose not to follow provisions, too many explanations are of poor quality. This suggests that some boards still need to do more than pay lip service to the needs of their shareholders and other stakeholders.
“The FRC believes more focused reporting by boards on how they discharge their responsibilities is necessary and has called for more oversight powers from government to help achieve this.”