Masterclass: Corporate Governance

A quick primer on the essential elements of ensuring best practice in the boardroom.

Last Updated: 09 Oct 2013

What is it? The fish rots from the head, it is said. So companies need to worry about what is going on in the boardroom, where the directors sit. This is where corporate governance happens: strategy is determined, decisions are taken and careers made (or destroyed). Directors of public companies have a legal responsibility (a 'fiduciary duty') to create value for shareholders. But what that means in practice can be debated. A new industry has sprung up, with regulators and consultants advising firms on governance.

Where did it come from? In the good old days, chairmen ruled in the boardroom and the other chaps around the top table fell into line - and they were mainly chaps. Still are, come to think of it. The City provided funds, raised by merchant bankers, whose word was their bond. Investors collected their winnings, raising objections with a quiet word only when it was strictly necessary. But in 1991 Robert Maxwell fell off his boat; it turned out he'd nicked the Mirror Group's pension. Reform was urgently needed. Sir Adrian Cadbury chaired the first of what became a long series of reports.

Where is it going? The two latest reports on UK corporate governance were released just before Christmas: the Hogg review of the 'combined code', and the Walker review on governance in the banking industry. Both called for the annual re-election by shareholders of chairmen and perhaps of other directors. Once again, companies are being urged to either 'comply or explain': fall into line with the new recommendations, or provide a good reason for not doing so. If the rest of the UK economy was as productive as the corporate governance industry has been over the past 20 years, all our worries would be over.

- Fad quotient (out of 10): Eight and on the up.

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