15.03.2012
By Simon Miller
The CBI has warned that extreme government intervention in corporate governance risks the impression that Britain is closed for business.
With continuing political heat over corporate governance and executive pay, CBI president Sir Roger Carr warned that the government must act responsibly when setting out new regulation.
Speaking at a YouGov-Cambridge Symposium in London this morning, Carr said: “From the company perspective, overall the combined code and Companies Act are in reasonable order – if followed, they provide an antidote to the risk of corporate failure by accident or arrogance – they will never beat criminal intent but will guide the inexperienced, focus the ambivalent and control the adventurous.”
He added that power separation, corporate transparency, contract term excess, accounting disciplines, risk management have all improved, and there is no doubt that corporate Britain is a better place for the changes.
“It would be hard to find anyone who now feels that power separation - empowered non executive directors and SIDs are not sensible measures of good governance,” Carr continued.
On Coalition proposals for future changes to corporate governance, Carr said it was natural for the coalition to focus on issues largely stimulated by the failure of banks – in remuneration control, self-control and shareholder engagement.
“Whilst understandable - the challenge for government of course, is to ensure that in deepening its role in shaping corporate behaviour, it does not cross the line between constructive engagement and meddling involvement,” he said.
Carr added: “Less is often more and government must avoid believing the bureaucracy is an antidote to bad behaviour.”
He continued: “Extreme intervention however can always tip the balance – converting goodwill into irritation and confrontation – changing an impression that Britain is open for business to a view that the door is
closing - on talent, reward, entrepreneurial drive and ambition.”
Carr added that reward structures were a function of markets – not morals –high rewards for mediocre performance are unacceptable and any reward for failure is intolerable – but the check and balance of [remuneration committees] and boards that exist, supported by additional transparency and annual voting on directors – should be enough to do the job.
He concluded: “On balance, I am hopeful that common sense will prevail and we will emerge from a long period of consultation that will reflect sensible adjustment, not draconian change – an outcome that should comfort the doubtful and discipline the process, without demotivating the wealth creators.”
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