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.

Photo: Getty
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No, the battle in Momentum isn't about young against old

Jon Lansman and his allies' narrative doesn't add up, argues Rida Vaquas.

If you examined the recent coverage around Momentum, you’d be forgiven for thinking that it was headed towards an acrimonious split, judging by the vitriol, paranoia and lurid accusations that have appeared online in the last couple days. You’d also be forgiven for thinking that this divide was between a Trotskyist old guard who can’t countenance new ways of working, and hip youngsters who are filled with idealism and better at memes. You might then be incredibly bemused as to how the Trotskyists Momentum was keen to deny existed over the summer have suddenly come to the brink of launching a ‘takeover bid’.

However these accounts, whatever intentions or frustrations that they are driven by, largely misrepresent the dispute within Momentum and what transpired at the now infamous National Committee meeting last Saturday.

In the first instance, ‘young people’ are by no means universally on the side of e-democracy as embodied by the MxV online platform, nor did all young people at the National Committee vote for Jon Lansman’s proposal which would make this platform the essential method of deciding Momentum policy.

Being on National Committee as the representative from Red Labour, I spoke in favour of a conference with delegates from local groups, believing this is the best way to ensure local groups are at the forefront of what we do as an organisation.

I was nineteen years old then. Unfortunately speaking and voting in favour of a delegates based conference has morphed me into a Trotskyist sectarian from the 1970s, aging me by over thirty years.

Moreover I was by no means the only young person in favour of this, Josie Runswick (LGBT+ representative) and the Scottish delegates Martyn Cook and Lauren Gilmour are all under thirty and all voted for a delegates based national conference. I say this to highlight that the caricature of an intergenerational war between the old and the new is precisely that: a caricature bearing little relation to a much more nuanced reality.

Furthermore, I believe that many people who voted for a delegates-based conference would be rather astounded to find themselves described as Trotskyists. I do not deny that there are Trotskyists on National Committee, nor do I deny that Trotskyists supported a delegates-based conference – that is an open position of theirs. What I do object is a characterisation of the 32 delegates who voted for a delegates-based conference as Trotskyists, or at best, gullible fools who’ve been taken in.  Many regional delegates were mandated by the people to whom they are accountable to support a national conference based on this democratic model, following broad and free political discussion within their regions. As thrilling as it might be to fantasise about a sinister plot driven by the shadow emperors of the hard Left against all that it is sensible and moderate in Momentum, the truth is rather more mundane. Jon Lansman and his supporters failed to convince people in local groups of the merits of his e-democracy proposal, and as a result lost the vote.

I do not think that Momentum is doomed to fail on account of the particular details of our internal structures, providing that there is democracy, accountability and grassroots participation embedded into it. I do not think Momentum is doomed to fail the moment Jon Lansman, however much respect I have for him, loses a vote. I do not even think Momentum is doomed to fail if Trotskyists are involved, or even win sometimes, if they make their case openly and convince others of their ideas in the structures available.

The existential threat that Momentum faces is none of these things, it is the propagation of a toxic and polarised political culture based on cliques and personal loyalties as opposed to genuine political discussion on how we can transform labour movement and transform society. It is a political culture in which those opposed to you in the organisation are treated as alien invaders hell-bent on destroying it, even when we’ve worked together to build it up, and we worked together before the Corbyn moment even happened. It is a political culture where members drag others through the mud, using the rhetoric of the Right that’s been used to attack all of us, on social and national media and lend their tacit support to witch hunts that saw thousands of Labour members and supporters barred from voting in the summer. It is ultimately a political culture in which our trust in each other and capacity to work together on is irreparably eroded.

We have a tremendous task facing us: to fight for a socialist alternative in a global context where far right populism is rapidly accruing victories; to fight for the Labour Party to win governmental power; to fight for a world in which working class people have the power to collectively change their lives and change the societies we live in. In short: there is an urgent need to get our act together. This will not be accomplished by sniping about ‘saboteurs’ but by debating the kind of politics we want clearly and openly, and then coming together to campaign from a grassroots level upwards.

Rida Vaquas is Red Labour Representative on Momentum National Committee.