ALEX BRUMMER: Bad governance hampers UK’s Covid recovery

ALEX BRUMMER: Bad corporate governance hampers Britain’s recovery from Covid







Corporate Britain is treading a fine line between good governance and promoting post-Brexit city vibrancy.

The dangers of ignoring governance have been clearly demonstrated with The Hut Group (THG), which suffered a disastrous share price collapse from a peak of 807p in September 2021 to just 182.9p in last trading.

Other victims of the governance deficit include online fashion group Boohoo, which found it necessary to hire former Supreme Court Justice Brian Leveson to oversee supply chain reforms.

In general, investors are all too often willing to see through weak governance when there are strong gains and dividends.

Until it turns out that the accounting is less robust than it should be and there is questionable behavior.

In many ways, Britain’s strict governing regime should be a plus for the city.

But the enforcer of better governance, the Financial Reporting Council (FRC), notes that transparency requires more than broad statements.

One of the serious shortcomings is weak executive pay targets. One example is the potential £100 million bonus for Mike Ashley’s future son-in-law Michael Murray at Frasers Group.

This is based only on the stock price and not on the values ​​and purpose of the owners of Sports Direct. The FRC also notes a lack of focus on internal controls and risk management.

One of the myriad difficulties for Matt Molding at THG is the conflict of interest between his personal role as the company’s landlord and his controlling shareholder.

He has so far shown that he is unable to provide clarity to skeptical investors about how the revenues of his technology platform Ingenuity are calculated.

Another area that the FRC would like to see tightened up post-Covid is reporting of companies’ broader responsibilities (expressed in the City Code and company law) on a range of issues related to stakeholders, the economy and society.

A major reason to oppose private equity buyouts of publicly traded companies is that everything the new owners do, good or bad, is largely done behind high walls.

The interests of consumers, colleagues, suppliers, taxpayers and society at large would be much better protected if the publicly traded 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 harass themselves, advisers and enforcers – to make sure the buyers’ feet are held against the fire.

At the moment there is a haphazard system in which rather meaningless promises such as maintaining a headquarters in the UK or its regions can be easily circumvented, along with job guarantees and much more.

There is simply no formal standard to assess these matters, so the social impact is hardly considered.

The FRC makes supervision smarter. How much better it would be if the dilapidated house had the full force of the law in the form of a proposed Audit, Reporting and Governance Authority.

dull lamp

When it comes to the UK energy market, you have to be careful what you wish for. Theresa May’s government imposed a cap on energy prices following a similar earlier idea by then Labor leader Ed Miliband.

The idea was to limit consumer exposure to wholesale market volatility.

The cap is now wreaking havoc. Prices may be temporarily anchored by the cap, but the choice disappears before our eyes.

Minnows Orbit and Entice have joined the post burnout exodus at Bulb, now propped up with a £1.7bn tax loan.

This could possibly have been avoided if the politicians had taken the personal advice of officials at regulator Ofcom, who wanted a sliding cap to be adjusted every month or quarter as wholesale prices changed. This would have eased the pressure on weakly capitalized players.

The danger now is a return to the status quo ante, when the big six dominate the market and destroy choice again.

German démarche

The London Stock Exchange had better watch out. Frankfurt-based rival Deutsche Boerse is taking its game to the next level by extending its opening hours to 10pm local time in line with the closing clocks on Wall Street.

Professional investors will have access to alternative trading platforms after the London and Continental stock exchanges close. That’s not a luxury easily accessible to global retail investors who are increasingly interested in equity markets.

Dare thinking.