Rashmi Dube: No excuse for failures in corporate governance

The issue many companies fail to acknowledge, despite their size, is that the backbone of any organisation is corporate governance.
Rashmi Dube, partner at GunnercookeRashmi Dube, partner at Gunnercooke
Rashmi Dube, partner at Gunnercooke

Just recently Alison Levitt QC, cited “weak corporate governance” at Boohoo. This is an issue that has risen its head many times before, just look at Carillion and BHS.

It is a failure to be transparent, have set rules and practices that are followed. Issues that arise in any industry where failings are to be found often centre around the question of corporate governance and who should be held accountable, and to what level.

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After all, it is not good enough to say “I/we did not know” or that we had the procedures in place. The duty of good corporate governance also falls on the shoulders of the non-executive director. Have they done their due diligence before accepting the role and if so what did they do to during their time to ensure that the board ensuring its values and practices are met?

The issue is imperative in the pandemic because the focus of many organisations is on costs and profits and other things can be missed. What is often out of sight (the supply chain) – due to failures to carry out audits and checks or where reports are provided but not acted upon – can result in the board beginning to be cut off from its values and our actions.

Good governance has wider impacts on a system that falls outside the company and its board.

I have written before about the importance of the non-executive directors (NEDs).

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But the situation seen recently in different sectors is just the tip of the iceberg in business and many more to come; company board’s and stakeholders all need to wake up and take an active responsibility. I would go as far as to say those associated with any company that is lacking in corporate governance or found seriously wanting in terms of ethics, whether they are aware of the situation or not, such as the service providers like lawyers, banks and auditors, should also consider their position and give consideration to removing their services. Do they still want their brand associated with this organisation?

This appears to be a simple question, and one could say “well, now they know they are changing”, but the far more significant question service providers should be asking comes down to their own corporate governance, ethics, risk, vision and mission.

Corporate governance is the core and fabric of any organisation and it applies across the entire landscape, not just with the supply chain but also with customers and clients. The question will truly be tested once litigation starts, providing those that have been detrimentally affected are not persuaded or advised to sign non-disclosure agreements.

Will company boards, directors and stakeholders continue in the same vein as there are no real penalties that can be applied? We saw a similar situation with Carillion and BHS in 2018 as examples of corporate failure, each one demonstrating why effective corporate governance matters to business owners, employees and stakeholders. Fundamentally, there must be people on the board that care about corporate governance and are willing to effect change and blow the whistle on those that refuse to comply.

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At present, the UK Corporate Governance Code is not law, therefore compliance is not compulsory. The FRC (Financial Reporting Council) asks companies to ‘comply or explain’ – either follow the Code or explain why they do not. I believe it’s time for the code to be given teeth through legislation that has an impact upon the board of directors, NEDs and stakeholders that appoint auditors. In the case of Boohoo, the company says it is committed to change and that it is underway.

I look around and wonder just how many of us have thought about or understand what corporate governance means even to the one-person self-employed. It’s appalling that we still need legislation, fines and penalties to ensure companies fall into good corporate governance practices when really this is the core of any organisation.

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Thank you

James Mitchinson

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