Julia Irvine 16 Feb 2017 03:18pm

FRC reiterates call for disciplinary powers against all directors

The Financial Reporting Council (FRC) is calling on government to extend its enforcement powers so that it is able to call company directors to account, and not just auditors, accountants and actuaries

FRC chief executive Stephen Haddrill told Radio 4’s Today programme that the regulator would like to be able to debar any director, “particularly in relation to financial reporting matters”.

“We think it fundamentally unfair and not in the public interest,” he said, “that we can pursue often quite high profile cases where we’ve brought prosecutions successfully – cases like Rover or Farepak, where we’ve proceeded against accountants but directors (not necessarily in those cases) generally if they are involved in the same sort of wrongdoing, we can’t proceed against at all.”

The extension to its disciplinary powers is one of the key issues the regulator will be raising with government in its response to the Green Paper on Corporate Governance Reform.

It will also stress the importance of helping boards take better account of stakeholder views and linking executive remuneration with performance.

The deadline for comments is tomorrow (17 February). Meanwhile the FRC has announced its own “fundamental review” of the UK’s corporate governance code.

This, it says, will cover work it has already done on corporate culture and succession planning, as well as issues raised in the Green Paper and the BEIS select committee inquiry.

“The review will build on the code’s globally recognised strengths developed over the past 25 years while considering the appropriate balance between its principles and provisions and the growing demands on the corporate governance framework.”

The FRC makes it clear that what it regards as the “current strengths of UK governance” – unitary boards, strong shareholder rights, the role of stewardship and the “comply or explain” approach – are sacrosanct and will be preserved.

Following wide-reaching consultation with stakeholders, the FRC will publish proposals later in the year which will be based on the outcome of the review and the government’s response to its Green Paper.

Haddrill denied that the FRC’s decision to announce its review just one day ahead of the Green Paper deadline was made out of concern that if it wasn’t seen to act, the government might impose a different corporate governance regime on UK plc.

The FRC would be looking at the content of the UK code for which it is responsible while the government would be considering a wider range of options, "some of which we hope will include new powers and new regulation", he said. "The two have to fit together."

He pointed out that the FRC had reviewed the code extensively in the wake of the financial crisis, introducing measures, such as the annual election of directors and long-term viability statements, that were regarded at the time as “quite radical”.

“What we did then was to focus on some of the lessons from banking and what we need to do now is focus on the lessons we’ve seen from some of these recent [corporate] scandals, from the lack of investor confidence in high executive pay and from a sense that companies need to engage more with a wider group of stakeholders – their employees, consumers, environmentalists and so on, not just investors.”

He added that investors were increasingly saying that they also wanted to see better engagement between companies and stakeholders because it was in their interests as shareholders that companies were seen to be serving the wider public interest.

ICAEW welcomed the FRC’s commitment to ensuring that the cornerstones of the current code would be maintained.

“We agree that the code’s approach has strengths (especially ‘comply or explain’),” Elizabeth Richards, ICAEW’s head of corporate governance, told economia. “ICAEW supports the FRC’s review and will fully participate in the consultative process.”