An overly prescriptive approach to corporate governance is doing little to improve companies' prospects, a new report from non-profit think tank Tomorrow's Company has concluded.
In a survey of non-executive directors (NEDs), executives and chairmen, the think tank found that the increasing “burden” of governance was leaving business ill-equipped to drive long term value.
It recommended that the role of NEDs must be reviewed, to focus on the purpose of the business beyond profit and to be its partner rather than monitor.
“The length of board packs, board agendas and the background of many NEDs in finance, legal and compliance contribute to NEDs too often seeing their role as ensuring good corporate governance and risk mitigation,” said Mike Wilson CBE, joint founder of wealth manager St James’s Place.
“This focus is at the expense of contributing to building a successful and sustainable company.”
Despite continuing updates to the UK Corporate Governance Code, which sets out standards of good practice for listed companies, Tomorrow's Company said that “the number of listed companies is in decline, investment is low, public trust is low, and corporate scandals continue to occur”.
The report added that current governance focuses too much on risk mitigation rather than creating opportunity.
As well as putting increased pressure on NEDs, this “exacerbates a focus on backward-looking financial information rather than the topics core to long term success, such as stakeholders, culture, strategy and disruptive technology”, it said.
It outlined how company boards may work to improve this culture, by clarifying the business's purpose and values, clarifying each NED's role and the balance between monitoring and partnering, allocating time to each activity, making sure they are fully informed and boosting diversity.
“Bertrand Russell once said: ‘As soon as we abandon our own reason and are content to rely upon authority, there is no end to our troubles.’ Rather than blind compliance with the code, this is surely the spirit in which boards should develop their model of governance,” said Jennifer Sundberg, co-chief executive of Board Intelligence.