What are the fundamental principles of corporate governance?

Board diversity and appointments make good headlines - but the basic principles required for successful board-led leadership are even simpler. It's time we stated them again.

In my last New Statesman blog in July 2013 I talked about the responsibilities of companies operating today; what these might be and why we think they are important, as we continue to examine what went wrong and led us to the global financial crisis.

In the light of this, our focus on the role of corporate boards heightened. They are the people who set a company’s strategic aims and provide the leadership needed to put them into effect. This is nothing new: company boards have always had this task. The UK Corporate Governance Code, which guides many businesses, states that the board sets the values of the company, and this is very different from running the business day-to-day.

For example, there is much discussion of who should be on the board. The diversity debate comes to mind immediately, but that is only one aspect. It makes a good news item when a novel appointment has been made from outside the usual candidates.

But this is not just about diversity. At the same time, there is a lot of support for getting people with extensive experience and competence on board. This could be particularly meaningful in highly specialised industries. But it might risk board members getting too close to the operational management of the company.

What board members need to remind themselves is that they are collectively responsible for the long-term success of their company. This may sound obvious but it is not always recognised.

Why do I feel the need to say this? Perhaps because the idea might feel slightly awkward in light of current concerns about the harm that dominant individuals on boards or a "group-think" mentality can do to decision making. Indeed, the challenge is for a board member to be independent, bringing in a different viewpoint and wider experience, but at the same time working together to achieve the same objective.

In a way, this is asking board members to deliver multiples of responsibilities. But then again, how different is it from us accepting the need to balance different – sometimes conflicting – responsibilities in our daily life? A good mix of people who can constructively challenge each other in the board room can help businesses to make meaningful decisions in rapidly changing markets.

Our suggestion is to get back to the fundamental principles of good governance which board members should bear in mind in carrying out their responsibilities. If there are just a few, simple and short principles, board members can easily refer to them when making decisions without losing focus. Such a process should be open and dynamic.

In ICAEW’s recent paper What are the overarching principles of corporate governance? we proposed five such principles of corporate governance.

·       Leadership

An effective board should head each company. The Board should steer the company to meet its business purpose in both the short and long term.

·       Capability

The Board should have an appropriate mix of skills, experience and independence to enable its members to discharge their duties and responsibilities effectively.

·       Accountability

The Board should communicate to the company’s shareholders and other stakeholders, at regular intervals, a fair, balanced and understandable assessment of how the company is achieving its business purpose and meeting its other responsibilities.

·       Sustainability

The Board should guide the business to create value and allocate it fairly and sustainably to reinvestment and distributions to stakeholders, including shareholders, directors, employees and customers.

·       Integrity

The Board should lead the company to conduct its business in a fair and transparent manner that can withstand scrutiny by stakeholders.

We kept them short, with purpose, but we also kept them aspirational. None of them should be a surprise – they might be just like you have on your board. Well, why not share and exchange our ideas - the more we debate, the better we remember the principles which guide our own behaviour.

Back to basics: What are the fundamental principles of corporate governance? Photograph: Getty Images.

Jo Iwasaki is Head of Corporate Governance at ICAEW.

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.