The FT has published our letter about “Letter: Investors are let down by the decision to dilute boardroom rules” see https://www.ft.com/content/ff6af1c7-6cb9-4fd8-9be0-43c11bcf89bb
The letter we wrote was as follows:
Sir
Many investors will be disappointed to read the article headed “Backlash spurs dilution of audit reform” (Report, November 9). The reforms are supposed to restore trust in governance and audit. Sir John Kingman’s review emphasised that the best way to do this was to focus on “the interests of consumers of financial information, not producers”. So why is the government being so swayed by the latter?
In submissions to the government, CFA UK, the Corporate Reporting Users’ Forum and representatives of retail investors all backed a form of UK “Sarbanes-Oxley”, the 2002 US federal law that established sweeping auditing and financial regulations for public companies.
This lays down requirements for an effective system of internal controls, signed off by the company’s leaders whose assessment is subject to external audit. The government’s impact assessment cited evidence that the US regime had resulted in more accurate financial information, more conservative accounting practices and a decrease in fraud.
The cost — £2.3bn spread over 10 years — sounds high but is less than a tenth of a per cent of the £2.6tn market value of the FTSE All-Share. The annual ongoing cost would be less than 0.004 per cent of the £5tn-plus enterprise value of the index. Debt holders also have a keen interest in accurate financial information.
The solution left to investors is to press boards to commission external audit as part of the audit and assurance policy. It is to be hoped that a directors’ statement on the effectiveness of internal controls will be mandatory so as to make their responsibility for accurate financial information explicit and actionable.
We support the government’s interest in fostering a healthy business environment and that is what the proposed reforms aim to do. So why water down measures that would reduce the risk of fraud and misstatements? As usual, however, the UK seems likely to fall back on the corporate governance code, which the good follow and the bad neglect.
Will Goodhart, Chief Executive, CFA UK
Jane Fuller, Fellow, CFA UK
Jeremy Stuber Chair, CRUF
Charles Henderson Chair, UK Shareholders’ Association
Cliff Weight Director, ShareSoc
ShareSoc have made our views very clear in the various responses to consultations from Government, BEIS, FRC, FCA, etc.
I shall be writing to my MP, Crispin Blunt, asking him to forward our letter to the Chancellor and the Secretary of State for Business and ensure they are aware of our views. (I have a rule not to write to my MP more than twice a year, but feel this is of sufficient importance to write to him; and when I see him at our local Conservative Association annual dinner later this month, I shall be able to discuss this with him in person.)
I shall also ask a question at AGMs and company meetings that I attend along the lines of:
Do the Company and its Directors support the audit reform proposals that are intended to restore trust in governance and audit? The appears to have been some lobby against these proposals which are in the best interests of shareholders and from which good companies have no reason to fear. Can you reassure your shareholders that you have not been part to any such lobbying?
Cliff Weight, Director, ShareSoc
Here is a template letter you can use to write to your MP if they are in the Labour Party. In the next comment is a template for a Conservative MP.
Dear MP name,
I write to you as a constituent and a member of not-for-profit organisation, ShareSoc, the UK Individual Shareholders Society.
ShareSoc represents the interests of ordinary people who want to invest their savings in the stock market.
In the wake of a series of accounting scandals, including the collapse of contracting firm Carillion, the government launched a series of consultations aimed at reforming corporate governance and the audit industry with a view to improving standards. ShareSoc supported these initiatives and responded positively to the consultations.
We now read that the government appears to be backtracking and watering down the proposals, presumably as a result of lobbying by vested interests. We have co-signed a letter responding to this, which has been published in the Financial Times. See FT publishes Audit Reform Letter signed by ShareSoc and UKSA – ShareSoc.
I would be most grateful if you could draw this matter to the attention of your colleague, Pat McFadden, Shadow Economic Secretary to the Treasury and encourage him to raise questions in the House about this government backsliding and lowering of standards.
If Pat or his team would like further information about this, please do not hesitate to put them in touch with me and I will be delighted to furnish further details about the consultations I am referring to.
Kind regards,
add your name and address (your MP won’t respond if you do not include your postal address as they need this info to check you are a constituent and they only respond to constituents.)
Here is a template letter you can use to write to your MP if they are in the Conservative Party
Dear MP name,
I write to you as a constituent[, a member of the Conservative Party] and a member of not-for-profit organisation, ShareSoc, the UK Individual Shareholders Society.
ShareSoc represents the interests of ordinary people who want to invest their savings in the stock market.
In the wake of a series of accounting scandals, including the collapse of contracting firm Carillion, the government launched a series of consultations aimed at reforming corporate governance and the audit industry with a view to improving standards. ShareSoc supported these initiatives and responded positively to the consultations.
We now read that the government appears to be backtracking and watering down the proposals, presumably as a result of lobbying by vested interests. We have co-signed a letter responding to this, which has been published in the Financial Times. See FT publishes Audit Reform Letter signed by ShareSoc and UKSA – ShareSoc. https://www.sharesoc.org/sharesoc-news/ft-publishes-audit-reform-letter-signed-by-sharesoc-and-uksa/
I would be most grateful if you could draw this matter to the attention of your colleagues, the Chancellor and the Secretary of State for Business, and question each about backsliding and lowering of standards.
If Rishi, Kwasi or their teams would like further information about this, please do not hesitate to put them in touch with ShareSoc who will be delighted to furnish further details about the consultations I am referring to.
[I look forward to seeing you at our Reigate and Banstead Conservative Association Dinner on 25 November.][or some similar nice ending]
With warm regards,
add your name and address (your MP won’t respond if you do not include your postal address as they need this info to check you are a constituent and they only respond to constituents.)