UK businesses are dealing with the economic fallout of the pandemic, the logistical issues of Brexit and huge societal challenges like climate change. It’s not surprising that some feel this is not the right time for a major overhaul of how the country’s businesses are governed and audited.
Yet these complex issues are precisely why the consultation from the Department for Business, Energy & Industrial Strategy (BEIS) on Restoring Trust in Audit and Corporate Governance is so critical. Any more delays to significant reform puts at risk the UK’s standing as a leading place to invest and do business.
The UK’s attractiveness to investors, innovators and entrepreneurs is principally due to its reputation for high standards of corporate governance. Yet a series of well-publicised, significant corporate failures have shown that there is much more to be done to strengthen this system.
When a company fails, the public rightly asks where were the management? The directors? The auditors? The regulators? The BEIS consultation document makes for difficult (and extensive) reading for all those stakeholders, precisely because the government is trying to tackle all of these questions for the long-term benefit of our economy and society.
The role of the auditor is a critical part in the reforms and that’s why Deloitte moved early to progress with the operational separation of our audit business, putting an independent Governance Board in place, and we continue to develop a broader, more forward looking-audit product in line with the recommendations of the Brydon review. Audit has been under the microscope for years and seen three in-depth government-led reviews. This consultation must bring a clear way forward to rebuild trust and confidence among businesses, investors and the public.
Through a commitment to reform, we can create a climate of confidence and stability in which investors can back businesses in the knowledge that what they see in the accounts is a true and fair view of both trading and prospects. That directors will be held to account and that regulators will have greater powers to monitor, intervene and, where necessary, penalise.
There is, of course, no one size solution here. Smaller entrepreneurial businesses simply cannot support the same level of administration and process that larger ones can – so policymakers need to take great care that any reforms do not stifle the growth this country needs if it is to recover from the economic damage of the past 12 months.
I don’t see the proposed reforms as more “red tape”. But rather, if done in a proportionate and thoughtful way, they’re a means to strengthen the UK’s corporate governance framework and increase accountability for key stakeholders. Through these proposals there’s a significant opportunity to enhance the reputation of the UK as a leading capital market and reinforce its position in the global economy, as we emerge from the pandemic and the UK repositions itself after leaving the EU.
This needs all stakeholders to engage with, and respond to, the white paper in a manner that recognises both the challenges and the opportunities for the UK if we get this right. This consultation can be an important milestone for regulatory reform, but only if investors, auditors, company directors, audit committee chairs and industry bodies give their views. We need widespread input from across the business community to ensure that audit and the whole corporate governance regime evolves to better meet society’s expectations.
Fundamentally, these proposed reforms are not about stifling the UK’s entrepreneurial spirit, they’re about strengthening the largest, systemically important businesses whose workforces, pension schemes and supply chains mean they have a social, not just financial, impact.
Change isn’t always easy. But the damage that corporate failures can inflict means that we, and all stakeholders, have a responsibility to ensure that whatever change lies ahead improves the quality, transparency and resilience of UK capital markets and generates greater trust in business.