This was an excellent event, well organised by the FRC with about 80 attendees from ShareSoc and the UK Shareholders’ Association.
It is very reassuring to hear the underlying messages now coming from the FRC. The significant change of approach on transparency is very much to be applauded. It is also clear that oversight of audit quality is receiving much more attention. Following hard on the heels of yesterday’s presentation from David Rule, I was very pleased to see today’s news alert, ‘Auditors need to improve their challenge of management urgently’.
At the same time, the much sharper focus on Stewardship and Governance with David Styles in charge of this area is most welcome.
I know that there is much more to be done over the next two to three years. Whatever, the future brings, Sir Jon Thomson made it clear that it will not be ‘business as usual’. That also is a welcome change.
Sir Jon Thomson the new CEO opened the meeting and spoke of his plans – he made the proviso that he has only been in place 5 weeks so I don’t think these are set in stone. ARGA is taking over the role of the FRC and most of its employees will be transferring across. ARGA needs legislation before it can officially commence and currently we are in purdah because of the General Election. Sir Jon has to implement the 83 recommendations of Kingman, probably another 60 or so from Brydon (expect these on 9 Jan 2020) and several more from the CMA (Competition and Markets Authority). He noted that Freedom of Information Requests can be made and have to be published after 1 Dec 2019 – previously the FRC was exempt from FOI.
He also gave his view that an awful lot of shareholders do not engage and they outsource it to proxy people. This was honest and candid but I think it would not endear him with many of the governance folk in institutional investors.
One questioner asked him why UK directors don’t go to jail, like they do in US? He noted that one of the big differences is Sarbanes-Oxley which requires directors to sign off on what is in accounts. It is of course the SFO which has to prosecute in the UK and send people to jail, not the FRC. The FRC fines people, firms and companies, censures them and can strike them off.
Robin Goodfellow (ShareSoc-UKSA member) asked about a £30 million error in the accounts of a £50 million market cap VCT, who he had reported to the FRC, and why he had not been told of progress other than a letter citing the FRC procedures which told him nothing of value. He handed over a letter to the FRC and asked them to look at his complaint and revert.
David Styles gave us an update on the FRC’s UK Corporate Governance Code and the 2020 Stewardship Code. I asked (having first pointed out that individual investors own 10% of FTSE 100 companies, 19% of other Main Market companies and 30% of AIM) how important did they see individual investors in stewardship? It was gratifying to hear David’s reply “the collective voice of individual shareholders is very important and one that the FRC can support”.
Both UKSA and ShareSoc will look forward to continuing to engage closely with you and doing whatever we can to support and encourage the change that is now taking place.
There were previous meetings with the FRC in 2018 and 2017 and notes of these meetings are here:
Cliff Weight, Director, ShareSoc