It is interesting that Hector Sants chose corporate governance as the topic for his last speech as CEO of the Financial Services Authority. The speech highlights 3 key components to an effective board:

- that there needs to be an effective board that sets the right tone form the top;

- that it is the Chair's role to construct and manage a board that has the appropriate levels of skills and experience to enable it to function effecticvely;

- that the board needs to sign off strategic plans and ensure that the executive team execute those strategic plans.

A firm's culture is central to good governance and the speech explores to what extent a regulator can influence and incentivise the right behaviour and culture in firms. The full text of the speech can be found here http://www.fsa.gov.uk/library/communication/speeches/2012/0424-hs.shtml

It is a useful contribution to the governance debate in the UK.

John Kay's interim report was published on 29 February 2012 and it summarises the representations made and draws out issues that will be considered in the second phase of the review. More input is welcomed up to 27 April 2012. The interim report focuses on three broad areas: the governance of companies; the ways in which current economic activities are measured and the functioning of the markets and the current structure of the savings markets.http://www.bis.gov.uk/kayreview

The modern role of asset managers if a key issue of the review. The key relationships are between asset managers and companies and asset managers and beneficiaries. Stewardship, the review states, should extends more widely than the set of issues commonly currently discussed as corporate governance.

In terms of the company and the board the review raises that the UK is an extreme case amongst many developed economies in it's openness to hostile takeovers. Also discussed is whether long-term shareholders should enjoy enhanced voting rights and whether shareholder committees would allow a 'collective voice' to be heard more effectively than individual engagement. Diversity models were raised as options to gain greater involvement on nomination matters.

Current reporting practices may have adverse effects on the behaviour of companies and investors and the review is concerned with the quality as well as the quantity of information: mark to market accounting and accounting for the liabilities of UK pension funds are highlighted. Market practices also came under the scope of the review and the current state of the IPO market is discussed as well as the trend of decline in UK Listings and the effect of limited free float on governance.

Asset managers and intermediaries come under the focus of the review. The critical issue for asset managers may be the structure of the relations between asset managers and those who provide the funds that they manage with a key emphasis on a lack of an incentive within the system for active engagement: exit usually being preferred over 'voice'. The growth of passive fund management is highlighted.

Intermediaries also come under the scope of the review and the concept of fiduciary duty is discussed in the review as being capable of having a wider use in the investment chain. As fiduciary duty is the highest standard of agency relationship that the law allows developments in this area could have a big impact. It will be interesting to see where this review goes: the final report is due in the summer 2012.

BIS announced this week, by way of update to it's webpage on narrative reporting frameworks, that the initial analysis of the consultation last year on narrative reporting shows support for the new reporting framework. However, as several organisations have said that bringing the changes into force for October 2012 will not give companies enough time to adjust BIS propose to bring these changes into force in April 2013. BIS hope to publish a response to the consultation in March 2012: http://www.bis.gov.uk/Consultations/future-of-narrative-reporting-further-consultation?cat=closedawaitingresponse

A useful report has been recently published by the OECD:

http://www.oecd.org/dataoecd/33/17/49081553.pdf

which investigates the behaviours of institutional investors by way of three peer reviews (Australia, Chile and Germany) on the implementation of a couple of the OECD Principles of Corporate Governance. A key problem identified in the report is that domestic investors in many jurisdictions do not vote their foreign equity. This is importance because foreign ownership in many jurisdictions can make up to 30% of total ownership. The report highlights that barriers to cross-border voting remain, but evidence shows that there is also a lack of knowledge by some institutional investors about the foreign companies in their portfolios. This review shows that given the right set of conditions, institutional investors can play an important role both in jurisdictions characterised by dispersed or concentrated ownership, with their role being facilitated by private and/or public policy action. The  peer reviews make compelling reading and show how very different systems can be improved and enhanced without loosing their essential characteristics.

An International Good Practice Guidance Exposure Draft has been published by IFAC (International Federation of Accountants) for comment by 29 February 2012:http://www.ifac.org/publications-resources/evaluating-and-improving-internal-control-organizations

The aim of the guidance is to establish a benchmark for good practice in maintaining effective internal control and to create a cycle of continuous improvement for internal control systems. The exposure draft is a welcome addition to the materials available to those working in internal control and risk management and is well worth a read as it contains much excellent work and provides a useful set of 'key principles' which can be used to evaluate and improve internal control.

Also excellent in this space is the Institute of Risk Management's Guidance Paper on Risk Appetite and Tolerance published in Autumn 2011 which provides practical advice on how to approach the development and implementation of a risk appetite framework:http://www.theirm.org/publications/risk_appetite.html

Both these publications will help boards and those advising boards to better discharge their corporate governance responsibilities more effectively.

A third study of a series by Professor Annie Pye spanning almost 25 years represents a unique perspective on the changing nature of being a director in FTSE companies. Drawing on a unique qualitative dataset of one-to-one interviews, the research explores the 'people' side of corporate control.http://business-school.exeter.ac.uk/documents/staff/aj_pye_ftse_short_report.pdf

This work is a product of a series of three research projects repeated approximately every ten years since 1987 and has generated key findings for boards, directors and all those interested in corporate governance. It is a rich piece of research and highly relevant to the corporate governance debate in 2012. The research highlights that corporate governance regulation is necessary but not sufficient in ensuring effective board conduct and that there is much more to corporate directing and the director's role than what falls within the current corporate governance classification.

The research reminds us that the critical corporate governance question persists: who is accountable to whom, for what, how, when and where, and with what criteria for evaluation? 

The 'gatekeeper' nature of the role of company secretary is especially highlighted as a role of considerable influence (those of us who have worked in this capacity will find that as no surprise but it is so very rarely acknowledged out of the boardroom) and the sections on non-executive directors are essential reading for NED's and aspirant NED's. All in all this is a great piece of research and has many points for discussion and key findings of which we should all take note, discuss and debate.

BIS has recently launched the latest phase of the Red Tape Challenge which throws the spotlight on company and commercial law. The campaign has six cross cutting themes that affect all businesses. The  company law theme will run from 26 January 2012 to 15 February 2012. The discussion paper http://www.bis.gov.uk/assets/biscore/business-law/docs/c/12-560-company-law-flexible-framework-discussion-paper.pdf has 8 specific questions covering areas such as: company names; company filings; penalties and enforcement and employee share schemes. However, comment is not only sought on these specific issues as anything can be raised so this is a good opportunity for directors and those interested to provide input.

The  discussion paper also provides a very useful summary of all the work in progress that BIS are currently engaged with in this space (limited exemptions from mandatory audit; partial exemption for micro entities under the EU accounting directives and changes to narrative reporting requirements). BIS want to build on this work and consider whether further improvements can be made which would remove burdens on business and lead to growth.  In addition to this the European Commission is currently negotiating changes to both the audit and accountancy directives with Member States.

BIS are keen to hear views and comments can be made to the specific questions as well as on other relevant issues on the Red Tape Challenge webiste: www.redtapechallenge.cabinetoffice.gov.uk/