ALEX BRUMMER: Bad corporate governance is thwarting Britain’s recovery from Covid
Corporate Britain treads a thin line between good governance and promoting the City’s vibrancy post-Brexit.
The dangers of ignoring governance have been manifestly displayed at The Hut Group (THG), which suffered a calamitous share price collapse from a peak of 807p in September 2021 to just 182.9p in latest trading.
Other sufferers from the governance deficit include online fashion group Boohoo, which found it necessary to bring in former high court judge Brian Leveson to monitor supply chain reforms.
Generally, investors are too often willing to look through weak governance when there is strong delivery of earnings and dividends.
That is until it emerges the accounting is less robust than it should be and there is questionable behaviour.
In many ways, Britain’s tough governance regime ought to be a plus for the City.
But the enforcer of better governance, the Financial Reporting Council (FRC), notes transparency requires more than broad-brush declarations.
Among the serious shortcomings are weak targets for executive pay. An example would be the potential £100million bonus for Mike Ashley’s future son-in-law Michael Murray at Frasers Group.
This is based on share price alone rather than the Sports Direct owners’ values and purpose. The FRC also finds a lack of focus on internal controls and risk management.
Among the myriad of difficulties for Matt Moulding at THG are the conflicts of interest between his personal role as a landlord to the company and being its controlling shareholder.
He has so far shown an inability to offer clarity to sceptical investors on how the revenues of its tech platform Ingenuity are calculated.
Another area that the FRC wants to see tightened up post-Covid is reporting of the broader responsibilities of companies (spelled out in the City Code and company law) on a range of issues relating to stakeholders, the economy and society.
A key reason for opposing private equity buyouts of quoted firms is that everything that the new owners do, good or bad, is conducted largely behind high walls.
The interests of consumers, colleagues, suppliers, the taxpayer and society in general would be far better protected if the quoted companies engaged in best in class reporting on all these issues as well as climate change.
It would then make it much easier for big battalion investors – if they can bother themselves, advisers and enforcers – to make sure that the feet of the buyers are held to the fire.
At present there is a haphazard system in which fairly meaningless promises, such as maintaining an HQ in the UK or its regions, can be easily circumvented, along with job guarantees and much else.
There is simply no formal standard to judge these matters so societal impacts barely get a look in.
The FRC is smartening up surveillance. How much better it would be if its ramshackle house had the full force of the law in the shape of a proposed Audit, Reporting and Governance Authority.
When it comes to Britain’s energy market you have to be careful what you wish for. Theresa May’s government imposed a cap on energy prices in response to a similar earlier idea from then Labour leader Ed Miliband.
The idea was to limit the exposure of consumers to volatility in the wholesale market.
The cap is now wreaking havoc. Prices may be temporarily anchored by the cap but choice is vanishing before our eyes.
Minnows Orbit and Entice have joined the exodus following the burnout at Bulb, now being propped up with a £1.7billion taxpayer loan.
This potentially could have been averted if the politicians had taken the private advice of officials at regulator Ofcom which wanted a sliding cap adjusted each month, or quarter, as wholesale prices changed. This would have relieved pressure on weakly capitalised players.
The danger now is a return to the status quo ante, when the big six control the market again destroying choice.
The London Stock Exchange better watch out. Frankfurt-based rival Deutsche Boerse is lifting its game by extending its opening hours to 10pm local time in line with closing bells on Wall Street.
Professional investors have access to alternative trading platforms after London and Continental exchanges close. That’s not a luxury easily open to global retail investors who are showing increasing interest in equity markets.