Risk simply means that we are not sure about what will happen in the future. If you know everything about the future, you haven’t got any risk. However, if you are mortal like the rest of us you are constantly wrestling with what might, or might not happen, in the future. That’s risk. Then you think about what you might do to influence or respond to the future event. That’s risk management. Risk management isn’t about having a risk committee or...
At the very last minute the Insolvency Service, acting for the UK Government, has just abandoned disqualification proceedings against five former non-executive directors of Carillion, which collapsed in 2018. This is a massive relief, not just to those individuals, but to the whole non-exec community as it would have put full responsibility on all non-execs and audit committees to detect and stop hidden executive misconduct. Three ex-Carillion...
A company with just £24m annual revenue goes bankrupt with £1.9 bn of debts and a further £0.6m financing commitments. It made two appallingly large and risky investments that, not surprisingly, went disastrously wrong. It should have made national headlines amid demands for prosecutions and disbarments, as well as calls to tighten company law and the Corporate Governance Code. Except that it isn’t a company. It’s a local authority, Woking...
In case any of us forget the importance of good corporate governance, have a look at the administrator John Jay III’s declaration* on the collapse of FTX, a company once valued at $32 billion. The governance was so bad, you might smile at some of this, but remember that a vast number of people have lost a lot of money. I’ve added a few signposts for each quotation from the report, and a few conclusions at the end: A damming summary; “Nearly...
Making better decisions is the holy grail of the boardroom. Corporate governance is full of rules and procedures, but very little on actual decision-making. There is however considerable academic discussion of good decision-making. A really interesting example of this was published by Stanford Graduate School of Business in their ‘All Else Equal’ series: ‘The Path to Good Decisions Starts with Data’. Their basic tenet is pretty unarguable: Good...
Two successes from the pandemic have been the ‘Recovery’ treatment trials and new vaccines. Medical experts suggested possible options, tested each in blind trials, with the most successful treatments (such as dexamethasone) identified and rolled out globally, and changes made with real-life experience. Millions of lives are being saved thanks to evidence-based medicine. Fortunately, the medical profession didn’t commission inquiries to find...
A ‘government source’ is quoted in the Times (25 May 2021), trying to defend the government against accusations that it failed to prepare adequately for the pandemic: “The reason we prepared for flu is because we have flu epidemics every year. The idea that you prioritise what’s least likely to happen is for the birds. This was a novel virus. The clue’s in the name…we didn’t know that it was asymptomatic. It’s very difficult to prepare for...
https://www.youtube.com/watch?v=s9SPeJOdQnI
Tesco has proudly announced that it is the first UK retailer to offer sustainability-linked supply chain finance. That sounds great, well done Tesco! But wait a moment. What does this really mean? Supply chain finance is used when a company takes so long to pay its suppliers that they have to borrow money to finance themselves. Suppliers can borrow against the amount of money that Tesco owes them, but of course, the suppliers have to pay the...
A fascinating piece of academic business research1 was posted on Linkedin. Not normally an aficionado of academic papers2, I couldn’t resist reading it. The title ‘Role of Old Boys’ Network and Regulatory Approaches in the Selection Process for Female Directors’ lured me in. It promised fascinating research into gender diversity on boards, something I am passionate about. Now I don’t suppose they have a Trade Descriptions Act on academic...
Tesco, like Dominic Cummings, has a home in Durham, but not in Barnard Castle. Also, like the No10 guru, Tesco has come in for a lot of criticism about its application of the pandemic rules. It is banking £532m COVID-19 full year rates rebate, despite actually benefiting in many ways from the lockdown. As a result, it is now paying a bumper dividend up 21%. Is Tesco as short-sighted as Cummings? There are not many companies at the moment in the...
The much-awaited Brydon Report was published just before Christmas. It didn’t get much publicity, as the festive season proved more alluring than yet another long report and profusion of recommendations on corporate governance. In a sense, this was a pity as this ambitious report contained over 60 wide-ranging recommendations that would have considerable impact on auditors and boards. It also needs to be seen as part of an avalanche of changes...
I am responding to the request from the Government for views on the recommendations by the Competition and Markets Authority on the market for Statutory Audit Services. This submission is made in a purely personal capacity. Over the last 25 years, I have been chairman or director of ten different companies, from small privately owned to FTSE100, participating in over 200 audit committee meetings. I have never worked for an auditing firm, big or...
What if the government insisted that every time you bought a tin of Heinz baked beans, you had to buy at least half a tin of Crosse & Blackwell ones too? You would have to explain to the grocery regulator why you chose Heinz, and if it thought that your choice was the wrong one it would mandate you to buy differently, publicly shame you and even take control of your grocery shopping as a punishment. You might not feel so great about it, but...
Storm clouds are gathering over the audit market. Government, politicians, media and regulators are all queueing up to condemn companies and auditors over the few, but well-publicised, failures of certain companies. Lack of knowledge about the audit process is no bar to these opinion-formers. Meanwhile industry bodies are supine in defending business and signally failing to provide the missing knowledge as to what actually happens and what went...
The FRC has set out new proposals for more corporate governance regulation (the Wates Report) for large private companies. This is my response to the consultation. Summary High quality regulation should focus on outcomes and provide evidence to support new rules and principles. Both the government and the FRC seem to be impervious to either. The Wates proposals identify neither outcomes nor evidence. They require private companies to disclose...
Whether ‘tis nobler to buy back shares or pay a dividend? Introduction Maybe Hamlet was not so concerned with shareholder distribution, but most modern company directors certainly are. In an earlier article I reviewed why and how companies make shareholder distributions and in particular pay dividends. However there is another form of distribution, the share buy-back. Share buy-backs Companies can purchase their own shares, using cash...
It won’t be long into your first non-executive job when you start to feel as if the executives resent you. It’s okay. You haven’t become paranoid. They really do resent you. Why? Being an executive director is a tough job. You work all the hours that the Working Time directive allows, then you opt out and work some more. The market is very tough and competitive, and you end up making numerous difficult decisions. You do this for a couple of...
“I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. “In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the...
Corporate Governance
Economics
Notes From A NED