Julia Irvine 14 Jun 2018 12:30pm

Investors want new body to hold directors to account

The Investment Association has called on the government to set up a new body with the power to punish company directors who are found negligent in carrying out their duties

It says that the current system is fragmented and a single authority would be able to provide better scrutiny.

The need for a new body, which the association sets out in its response to the Department for Business, Energy and Industrial Strategy’s (BEIS’s) consultation on insolvency and corporate governance, has become more pressing given the attention now being paid to boardroom behaviour and performance and the demand for greater accountability.

The association points to the fact that the public register it launched last December following a request from government, has already recorded 28 companies since the start of the 2018 agm season where 20% or more of shareholders voted against a director re-election resolution.

Investment Association director of stewardship and corporate governance Andrew Ninian argues that recent high profile cases have demonstrated that the current framework for sanctioning needs re-thinking.

“The current system of sanctions is fragmented between many different authorities, and often directors are only sanctioned as a result of investigations after a company goes into insolvency,” he says.

“By uniting the powers and responsibilities, we would be giving real teeth to a single body which could then hold any directors to account for being negligent of their duties.”

The association is not making any recommendation about whether the brief should go to an existing body – like the Financial Reporting Council (FRC) – or to a newly created organisation.

The FRC has made it clear that it wants to be able to sanction all directors, not just those who are members of the accountancy and actuarial professions that it regulates.

In a letter to the House of Commons’ BEIS committee in December 2016, FRC chief executive Stephen Haddrill set out the regulator’s recommendations on corporate governance and what additional powers these would require.

He explained that there was no way of holding other directors to account even where the evidence suggested that they were guilty of a breach of regulations. “We believe this should be rectified both in relation to questions of integrity and a failure to report properly to shareholders,” he wrote.

It is a theme that the FRC has returned to on many occasions and which is now one of the issues being considered by Sir John Kingman in his independent review of the FRC’s future.