How healthy is the corporate governance environment – and is the flurry of recent measures aiding or hindering recovery? We interviewed companies, investors and regulators from around the world to take the temperature of corporate governance and executive reward today.
There has been a flurry of corporate governance codes, legislation and regulations in the aftermath of the credit crunch, as governments and markets seek to reduce the risk of future corporate and market failures. Hay Grouphas conducted this international study to take stock of the changed business environment and to seek the views of companies, investors and regulators of the current state ofcorporate governance and executive pay.
The questions we put to our interviewees were specifically designed to gauge just how effective the push for reform has been and to create a platform for discussion as to what could makeit better. From the 127 in-depth interviews conducted across 17 countries, some important points emerge.
Keep it simple: overall, the increased focus on corporate governance was seen as positive. However, there are concerns that the regulatory approach is becoming too intrusive and detailed– driven by political interests rather than a desire to find a genuinely better approach to governance. One effect of this over-prescriptionis to risk pushing the responsibility of running the company away from management and the board, and on to investors and government.
Building bridges: dialogue between all different parties to the governance equation – companies, regulators and investors – is generally poor. There was a general feeling that the ‘worlds were not joined up’ and that communications needed to improve for corporate governance changes to be truly effective.
Acknowledge diversity: businesses tend to survive because they are different to their competitors, but it is not only differences in products that matter; so do structures, strategies– and ownership. Around the world there is a great diversity of ownership types as well as diverse ownership interests and a singleregulatory approach cannot accommodate all of them.
Culture matters: culture is the single most critical factor in good corporate governance and effective executive pay – and it is the factor most often ignored. Related to this is the need for improvements in the composition and competence of company boards, which are largely responsible for creating that culture.