Companies 'prioritising' better corporate governance

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David Wilson, chief executive of the Institute of Chartered Secretaries and Administrators (ICSA), talks to ePolitix.com at the ICSA Hermes Transparency in Governance awards.

Could you tell us about the ICSA Hermes Transparency in Governance Awards and why they are so important?

David Wilson: The awards were initiated against the backdrop of the financial crisis and amid concerns that companies weren't doing their best to achieve good corporate governance. We wanted to redress this perception, particularly given that much of the economic crisis arose in the banking sector.

We have also been concerned that there is too much 'boiler plate' reporting in corporate governance, too much taking of the easiest route and offering minimal disclosure - disclosure that is not helpful to the investor. The intention of the awards is to address those issues, and that is why we have launched this initiative.

What message is the ICSA attempting to get across to a parliamentary audience, through your recent Boardroom Behaviours report and the Transparency in Governance Awards?

There are two major messages that we would like to convey. Firstly, there are companies that are doing an excellent job in disclosure and transparency, and the awards will demonstrate that. In 12 years of drafting company reports, I have read some of the best corporate reports of my career, in the process of judging these awards. We must recognise that there is a trend towards greater disclosure and transparency.

Secondly, we must say: 'are there any parts of the governance framework which are deficient?' That is primarily about boardroom behaviour, which is the missing component in governance. If we can address that, then we can address a lot of the problems that we have had in the past. It isn't fair to say that the corporate governance mechanism in the UK - the Combined Code for listed companies - is actually failing. There have been instances of failures, but you can't brand the whole of corporate Britain as a failure. The Transparency in Governance Awards show that.

How do you see the role of government in promoting corporate governance? Should there be more intervention, or is transparency in the boardroom best left to the individual organisation or sector?

I don't support interventionist policies in governance. Companies are owned by their shareholders and, of course, there must be regard for stakeholders and affiliated organisations.

The ICSA is very interested in sustainability. We think that sustainability is best achieved by companies that have regard for the whole spectrum of interest that is interested in their operation - shareholders, customers, suppliers, employees - the people who make the business work.

I think that companies that are aware of the power of their stakeholders and interest of their stakeholders will want to perform better and have full and comprehensive disclosure. It is through disclosure that we will see improvements in governance and improvements in performance. Ultimately, when you know that you are being watched, you want to perform better. Scrutiny encourages better performance from people. These awards are encouraging companies to be very transparent in what they say about their processes.

What has been the role of corporate governance in creating the current economic crisis? Could better corporate governance have helped to avoid recession?

I think that there is no doubt that failings in corporate governance contributed to the current economic crisis. The way that boardrooms oversaw risk, and the appropriate levels of risk that companies should have been adopting, is a significant contributor to the collapse of a number of banks and financial institutions. Other factors include the remuneration structures.

There were a number of failures, but they were largely around the issues of risk and understanding risk. I don't think anybody in the economy saw the potential for a 'credit crunch' to the extent that we have seen. All companies and individuals can take a certain responsibility for that.

Following the Walker Review and the Financial Reporting Council's (FRC) review of the Combined Code, companies will be putting this very high on their agenda. The evidence of tonight's awards suggests that companies are definitely prioritising this already.

Are there any final points that you would like to raise about corporate governance or the ICSA Hermes awards?

We would like to see the awards as the key corporate event in promoting transparency. I am particularly encouraged to see the number of companies that have risen to the challenge at this very early stage. At the awards we have companies who have totally moved away from 'boiler plate' reporting. Hopefully these awards will act as a catalyst for the rest of the corporate world to follow.

For an organisation to win an award for transparency is a very serious indicator of the good health of that company. It is an award for disclosure, but let's hope that it is a catalyst for the company as a whole. Significant progress has been made and I believe more progress will be made through the reporting of these awards. More companies will want to engage in transparent processes.

There is no company chief executive or chairman in the corporate sphere who would say that good corporate governance is not a hugely important priority. We want chief executives to see good governance as a business enabler, not a business killer, something which is particularly suited to delivering its strategy, and which adds to the overall competitiveness of the company as it becomes more effective in its decision-making processes. It adds real value. Good governance can prevent disaster and increase positive opinions of investors towards a company.

Please view ICSA'S response to the final report from Sir David Walker on Corporate Governance.