Expert sees new challenges and insights in corporate governance

Professor Andrew Chambers, a leading expert in corporate governance in the UK, is the main speaker at a conference in Larnaca next week on “Corporate Governance and Financial Markets in Europe” organized by Allied Business Consultants.

In an interview with the Financial Mirror, Prof. Chambers expressed his views on some of the challenges facing corporate governance and future developments.

On the risk of being a non-executive director and whether this is becoming too great to be worthwhile, Chamber said that, “most frequently it is the directors of small companies who end up in court. Arguably your risk is less if you are a director of a well-run multinational – though, of course, there have been exceptions.

“Small companies frequently cannot afford to reward their non-executive directors adequately. If you are being invited to join the board of a larger company, is it worthwhile to accept a non-executive director’s fee of, say, about 10% of your remuneration for your full-time day job?” he asked.

Prof. Chambers explained that non-executive directors have broadly similar legal responsibilities to those of executive directors, and boards are being held to account more and more. “You certainly need to do your due diligence thoroughly before accepting an invitation to join a board.”

It has also been suggested that audit committees are less likely to be effective in poorly run companies.

“Often there is no choice – regulations may require a company to have an audit committee. Regardless of that, I would say it is well worthwhile setting up an audit committee in a well-run company. It can relieve the board of a lot of hard graft. When a company is well run and doing well is a good time to put in place mechanisms, such as an audit committee, which will act as safeguards when testing times arrive in the future.”

Prof. Chamber found it odd that most people refer to the ‘auditing profession’ when its members belong to accounting bodies – though that is less so of internal auditors.

“In the future this will become less appropriate as the need for independent assurance extends more into the non-financial, narrative assertions that companies make – unless the accounting profession can broaden its perspective, which it has dragged its heels about so far. I would say that when society grants monopoly rights to practice to a particular occupational group, this should be matched by that group placing the ideal of service above that of personal financial reward.”

Prof. Chambers added that he has concerns that the profession runs itself to maximise profit. “Those who are most sick are in greatest need of a physician, yet we learn of auditing firms who decline clients when they consider the risk is too great,” he said.

There are several future developments in corporate governance that will impact most on business and society going forward, the professor said.

“Barring global catastrophe through war or natural disaster, I would say: global convergence of corporate governance standards and progressive enhancement of the single, free market in capital control. Is that one or two developments? I think they go together,” he said.

“There will be no hiding place for second-rate management teams – to the benefit of both investors, staff and everyone else. Capital markets will become more liquid as investors are more able to understand and rely upon corporate governance standards across the world. This will reduce the costs of capital. Global, national and investor wealth will increase.”

Looking to the future, Prof. Chambers believes employment levels will rise.

“It is a win, win scenario – and even if it were not, it is, in my view, unstoppable. That is not to say that the future will necessarily belong to the public, listed company. Private equity is becoming more significant and we can expect this to be on the corporate governance agenda going forward.”

“If I were allowed a second thought on this, I would have to add that addressing the challenges of global warming and allied corporate social responsibility issues will also be major corporate governance drivers in the future,” he said.

“They present huge opportunities for business. Green and CSR issues will increasingly drive capital markets – they are no longer to be regarded as anti-market forces. Of course it is not just traditional, ‘dirty’ industries that are impacted but financial institutions too,” prof. Chambers concluded.