The soul searching prompted by the Brexit vote has even reached the Financial Reporting Council (FRC), the watchdog that oversees corporate governance and stewardship in the UK.
With the FRC saying today (October 21) that Brexit could have “significant implications” for the adoption of international financial reporting standards, there was a markedly different tone at its annual meeting earlier in the week. Instead of the usual ‘technical’ approach, for the first time there was an independent panel discussing “issues of the day” such as inequality, high executive pay and corporate scandals.
The FRC’s remit from the government is to promote quality corporate governance and reporting to foster investment. Is also oversees accountants, auditors and actuaries.
FRC Chairman Sir Win Bischoff started proceedings saying it was reassured that its governance codes still met the needs of stakeholders. But he added: “We are considering how the governance principles meets the demands of all stakeholders.”
The language reflects a changed tenor stimulated by new Prime Minister Theresa May’s stated aims to create a more inclusive society and put workers onto company boards. Calling for “an economy that works for everyone”, she has spoken about a loss of trust in society.
This tone has percolated across to the FRC it seems, with CEO Stephen Haddrill also speaking of a loss of public trust in elites and big business.
“Companies depend on equity capital,” he said. “But they are also engaged with people and society at large. It’s something we feel is important. The regulatory regime is fragmented and we need to work with others.
“There is more focus on executive pay with questions of public trust, how to address corporate scandals. The failure is beyond finances – it’s a failure of culture.”
The itself debate featured Julia Unwin, CEO of the Joseph Rowntree Foundation, the social policy research and development charity – a first for the FRC.Also speaking was Helena Morrissey, non-executive chair of the Newton Investment Management Board, Paul Johnson, Director of the Institute for Fiscal Studies, the economic research institute, and Philippa Foster Back, Director of the Institute of Business Ethics, the body which promotes high standards of business behaviour.
“We have gained much food for thought”
Morrissey, a vocal advocate for diversity at companies, said that in 2016 big business was falling further apart from the rest of society. She said there needed to be a new relationship between business and society for sustainable growth and to overcome the productivity problem to create a capitalism that worked for all.
There has been eight years in the UK without any growth – something that hasn’t been seen in 100 years and can’t be explained, said the IFS’s Johnson.
Low growth, coupled now with a falling pound and inflation would further damage confidence, Unwin suggested.
Highlighting that there are 13.5m people in the UK without enough money to get by, she also focused on the material impact of poverty, estimating it costs the UK Treasury £75bn each year. Her organisation is working on creating investment products that will tackle the ‘poverty premium’ with UK social investor Big Society Capital.
The poverty premium is often dubbed the ‘double penalty’: in addition to not being able to buy many goods and services, people in poverty also end up paying more for the ones they can buy, like banking services.
Haddrill said the debate was challenging what was material, quipping that he could even be breaking company law in raising the point.
The change in tone for the FRC annual meeting was broadly welcomed by attendees. The FRC tweeted afterwards: “We loved hearing from our stakeholders this evening + have gained much food for thought.”