SFM Participant Paul Moxey published new consultation paper, "Creating value through governance – towards a new accountability: a consultation".
This paper argues that corporate governance is about creating value and that governance codes should be evaluated on how well they facilitate the creation of value. It sets out how a framework of ‘performing, informing and holding to account’ can work.
Key recommendations are as follows:
- There should be general acceptance that the purpose of governance is to create value sustainably.
- Governance codes and policies should be assessed against the accountability framework at each of the interfaces between management, boards, institutional shareholders and providers of funds.
- Companies and investors should develop and report using more suitable measures of performance and value creation.
A) Performance should be considered in terms of both value created by the company and the contribution of boards, management and staff.
B) Corporate reporting should additionally include:
i. probabilistic information on confidence and uncertainty
ii. information on the ethical health and values of the organisation, including the assessment and assurance system
iii. information to convey how, and by how much, companies create sustainable value and contribute to public good
iv. governance reports should be based on the principle of ‘apply and explain’ rather than ‘comply or explain’
- Policymakers and institutional shareholders should:
address the asymmetry in the risk : reward ratio between management, shareholders and other stakeholders. Ways should be found to enfranchise savers in order that they can hold institutional investors to account.
examine ways to give investors incentives to favour companies that create long-term value for themselves and for society against those that rely on short-term economic rent for their profits
This paper includes 59 consultation questions in 10 chapters. If you are interested in responding the questions, please email your responses to email@example.com with ‘Creating value through governance’ in the subject line, by 31 August 2014.