Joint Letter: Shelving plans to improve corporate governance is wrong call

This agenda has been in the works for at least five years, and the UK government has asked investors and many other stakeholders to devote considerable time and attention to providing input.

With economic pressures on business making accounting abuse more likely, requirements to improve corporate governance and reporting on financial resilience, fraud prevention and dividend-paying capacity seem both wise and timely. It makes little sense for the government to require enhanced environmental and social reporting (as they are pressing ahead with), while simultaneously abandoning improvements in the G of ESG.

But the government seems more intent on deregulation in the mistaken belief that this will make the UK stock market more attractive. While we can all agree that it is vital to avoid unnecessary red tape that dampens economic growth, shelving the entire package of reforms is a missed opportunity to improve transparency and reassure investors about a company’s long-term sustainability.

On the attractiveness of listing in the UK, the question is: more attractive to whom? Companies who list or the investors who are to buy the shares? Investors will simply have to increase the equity risk premium on shares traded on the UK stock market – a cost greater than that of implementing such reforms.

As happens too often, the carefully thought-out recommendations of experts – Sir John Kingman on the Financial Reporting Council and Sir Donald Brydon on audit – have been both watered down and repeatedly delayed.
It is ironic that just as the FRC has imposed record fines on KPMG for its failed audits of Carillion, the reforms prompted by that scandal are being neutered.

Yours,