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The UK’s audit watchdog has called for powers to discipline company directors, in an announcement that it will review the UK’s Corporate Governance Code.
The Financial Reporting Council currently has the ability to sanction actuaries and auditors, but has no power over company directors.
It said that its review will highlight the need to extend the FRC’s “enforcement powers to ensure that disciplinary action can be taken against all directors where there have been financial reporting breaches”. The FRC will also underline the importance of linking executive pay to performance.
Paul George, the FRC’s executive director of corporate governance and reporting, told the FT last month it had had suggested to the parliamentary select committee that “the enforcement of directors’ power in the UK was incredibly fragmented and could be pulled together by giving the FRC additional powers.”
Win Bischoff, the FRC’s chairman, linked the body’s moves to the UK Prime Minister Theresa May’s rhetoric on the economy:
The Prime Minister has a vision of an economy that, in her words, ‘works for everyone’. This needs UK businesses to thrive so that all stakeholders including workers, customers, suppliers and society itself benefit through jobs growth and prosperity.
With all this in mind, we will conduct a review of the current UK Corporate Governance Code. This will consider the appropriate balance between the Code’s principles and provisions.
A government green paper and a select committee inquiry have looked into corporate governance reform after a series of scandals involving directors at retailers BHS and Sports Direct.
But Sir Win acknowledged that in pursuit of changes to the code, “We must not throw out the baby with the bathwater.”
The FRC will consult with stakeholders from a variety of sectors as part of the review on corporate governance.