Westminster Business Forum

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Next steps for UK corporate governance

Morning, Thursday, 9th September 2021

***Full-scale policy conference taking place online***

This conference will discuss the future for corporate governance in the UK, at a time of increased focus on governance issues by regulators, government, investors, and the public.

The conference will be an opportunity to discuss the Government’s recently published Restoring trust in audit and corporate governance white paper - which aims to strengthen the UK’s framework for major companies and the way in which they are audited - as well as key themes emerging from the consultation on it proposals, and the expected government response.

The agenda will bring out latest thinking on:

  • priorities for the Audit, Reporting and Governance Authority (ARGA) - the new regulator for this area of policy - which is expected to fully replace the Financial Reporting Council in 2023     
  • how the new regulator can best use its intended statutory powers to both strengthen corporate governance and ensure that businesses retain competitiveness
  • maximising the potential of the new regulator to support attracting international investment to the UK

The agenda

  • The UK’s corporate governance regime, business confidence and supporting economic recovery in the wake of the pandemic 
  • Priorities for ARGA - powers, scope and establishing its role in promoting quality, competition, and good corporate governance, and protecting investors and the wider public interest
  • Scrutiny of large businesses, bonus reforms and addressing gaps in transparency requirements
  • The role of corporate governance in driving investor confidence and maintaining the UK as an attractive investment destination
  • Next steps for the audit profession -  the way forward for driving competition and quality, increasing choice for customers, and improving public confidence
  • Key priorities for policy

A scan of relevant developments:

  • Restoring trust in audit and corporate governance white paper - with the Government currently consulting on its proposals to strengthen the UK’s framework for major companies and the way that they are audited, including:
    • establishment of the Audit, Reporting and Governance Authority (ARGA) to replace the FRC
    • directors to be held personally responsible for the accuracy of their company’s financial statements, with fines and bans for major failures
    • new rules to report on diversity, environment, social and governance (ESG), and climate risks for FTSE 350 companies
    • large companies to hand part of their work to smaller auditors outside the Big Four
    • aims to make it easier to retrieve bonuses paid to executives of failed companies
    • large companies to be required to restrict dividends and bonuses if the businesses cannot cover the payments from reserves, or there is a risk of insolvency
  • key independent reports - commissioned by the Government in 2018, and accepting all of the recommendations made in each of the reports:
    • Independent Review of the Quality and Effectiveness of Audit - carried out by Sir Donald Brydon, who we are pleased is a keynote speaker at this conference, which concluded that:
      • statutory audit needs to be more informative
      • higher expectations should be placed on Directors and auditors to deliver more useful information to the users of reports
    • Independent Review of the Financial Reporting Council (FRC) - led by Sir John Kingman, which found that:
      • the regulator lacked the necessary powers and clarity of purpose to hold auditors to account, and recommended that they should be replaced
    • Statutory Audit Services Market Study - from the Competition and Market Authority (CMA), which:
      • found what was termed an unhealthy dominance of a small number of audit firms
      • proposed that new measures should be put in place to increase quality, competition, and resilience in the delivery of audit
  • the revised Stewardship Code - which is:
    • intended to place a greater focus on asset owners and on the outcomes and actions of signatories
    • introduces new requirements to report on stewardship each year

Key areas for discussion:

The establishment of the Audit, Reporting and Governance Authority (ARGA):

  • the ARGA - proposals for the introduction of a new regulator, which has legal powers to force auditors and companies to resubmit their accounts without the need for court action
  • regulatory priorities - key steps for the ARGA once it becomes fully operational, expected in 2023, in order to fulfil its aims to:
    • strengthen corporate governance
    • support the UK’s competitive advantage in this area without placing unnecessary burden on firms
  • potential effectiveness - assessing whether giving more powers to the new regulator will solve the problem of regulatory capture, as well as the FRC’s perceived close ties to the audit industry

Next steps for the audit profession:

  • the Restoring trust white paper:
    • prospects - the potential effectiveness of proposals to reduce the dominance of the Big Four audit firms, and drive competition and quality
    • impact - what would be the likely effect of proposed new rules in the white paper requiring large firms to use smaller auditing firms to conduct part of their annual audit
  • the CMA’s market review:
    • in the context of the review’s findings which included concerns that providing both accountancy and auditing services creates a conflict of interest
    • taking into account the FRC recommendation that:
      • the audit side of the firms should not be paid for introducing customers to their consulting arms
      • accounting partners should not be incentivised for sales passed to other parts of the firm
  • potential impact - assessing how far proposed new rules will help to:
    • create a culture change within the audit profession
    • increase choice and competition, improve quality, and improve public confidence
    • encourage more rigour in audits, particularly from big firms, with the introduction of a cap on the numbers of companies on the FTSE 350 index audited by large firms

Stewardship and delivering value:

  • the revised Stewardship Code:
    • effectiveness - evaluating the extent to which the revised code will achieve its aims of placing a greater focus on asset owners, outcomes, and the actions of signatories
    • enforcement - whether further powers are required to promote compliance
    • what further reforms may be needed to ensure the Code is fit for purpose, and relevant to modern stewardship
  • the UK in a global market - assessing:
    • the impact of a strengthened Code on the attractiveness of the UK as a place to do business
    • concerns that a significantly strengthened Code may deter businesses from listing in the UK.
  • ESG impact:
    • assessing the implications for businesses and policy going forward in light of the increasing role of environmental, social, and governance factors in investment decisions
    • what the proposed introduction of the new Annual Resilience Statement means for listed companies, pension funds and public interest entities with expectations for them to publish indications of the impact and risks of climate change on their activities

Policy officials attending:

Our forums are known for attracting strong interest from policymakers and stakeholders.

Overall, we expect speakers and other participants to be a senior and informed group including Members of both Houses of Parliament, senior government and regulatory officials involved in this area of policy, as well as businesses, investors, auditors, lawyers, trade unions, think tanks, business groups and associations, recruitment specialists, charities, academics and consultants, together with reporters from the national and specialist media.

This is a full-scale conference taking place online***

  • full, four-hour programme including comfort breaks - you’ll also get a full recording and transcript to refer back to
  • information-rich discussion involving key policymakers and stakeholders
  • conference materials provided in advance, including speaker biographies
  • speakers presenting via webcam, accompanied by slides if they wish, using the Cisco WebEx professional online conference platform (easy for delegates - we’ll provide full details)
  • opportunities for live delegate questions and comments with all speakers
  • a recording of the addresses, all slides cleared by speakers, and further materials, is made available to all delegates afterwards as a permanent record of the proceedings
  • delegates are able to add their own written comments and articles following the conference, to be distributed to all attendees and more widely
  • too - there will be opportunities for delegates to e-meet and interact - we’ll tell you how!

Full information and guidance on how to take part will be sent to delegates before the conference

Keynote Speakers

Sir Donald Brydon

Chairman, The Sage Group and Tide Holdings and Author, The Brydon Review, Independent Review into the Quality and Effectiveness of Audit (2019)

Catherine Howarth

Chief Executive, ShareAction


Shreya Nanda

Economist, Centre for Economic Justice, Institute for Public Policy Research

Professor Karthik Ramanna

Professor of Business and Public Policy and Director, Master of Public Policy Programme, Blavatnik School of Government, University of Oxford

Iain Wright

Head of Reputation and Influence, Institute of Chartered Accountants in England and Wales

Dr Roger Barker

Director of Policy and Corporate Governance, Institute of Directors

Alison Horrocks

Chief Corporate Affairs Officer, Inmarsat

Joanna Valentine

Partner, Cadwalader, Wickersham & Taft

Professor Prem Sikka

Emeritus Professor, University of Essex and University of Sheffield

Sotiris Kroustis

Partner, PWC