Promoting sound governance

Recently at the UK's House of Lords, I spoke at the launch of ACCA's discussion paper Corporate Governance and the Credit Crunch, a more detailed follow-up to our well received policy paper Climbing Out of the Credit Crunch.

At the same time, we launched Corporate Governance and Risk Management Agenda, a clear set of 10 principles developed by ACCA's expert committee, well worth a study by those who have an interest in these matters.

Both documents reflect ACCA's considered view that the current credit crisis is in large part down to poor corporate governance. We want to play our part in promoting long-term solutions which are founded in sound governance.

Here are some ideas of what we might need:

• Remuneration schemes which promote sustainable business performance. Performance-related pay only to be made out of genuine and demonstrable operational cash surpluses proved over time.

• Promotion of professionalism and ethics in business under which get rich quick, devil take the hindmost attitudes are rooted out without killing the spirit of enterprise.

• Effective oversight arrangements by informed non-executive directors who have access to training and expert resources to allow them to undertake robust and objective scrutiny of their executive colleagues' decisions and actions.

• Regulators, released from labyrinthine red tape and the resulting bureaucratic inertia, who are capable of applying a principles-based approach which encourages swift and effective action against excesses.

Meanwhile, we accountants both inside and outside the affected businesses have some questions to ask ourselves. Are the reporting and auditing standards fit for purpose? Were we sharp enough in seeing the warning signs and reacting? Have we done enough to explain the purpose and limitations of reports and accounts and audits and manage stakeholders' expectations?

We are keen to lead the debate. I'd be glad to hear your comments.

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Comments

[Katie]

I definitely agree with the points raised.

However, in relation to the economic downturn:
I also feel that a point should be made regarding the lack of knowledge and understanding displayed by the Directors of the banks, in the transactions that were being entered into - which resulted in toxic debts.

It is a case of if you dont know what an elephant looks like, you are not going to ask how many legs it has. (Arthur Andersons' and Enron springs to mind).

I also feel that if directors are setting unrealistic targets for employees lower down to achieve, and are cascading this pressure to achieve down through senior management, it is not surprising that good corporate governance becomes less of a priority.

Therefore, in light of the above - and in particular relation to Corporate Governance - perhaps more emphasis on gaining a thorough knowledge of the types of transactions that the business is carrying out - both from Directors and Auditors.

Just a thought.