Guernsey’s much discussed corporate governance code came into effect at the beginning of the year. Carol Goodwin (pictured) highlights its key principles, asserting that good corporate governance is about board behaviour and not always about the rules.
Never has so much been demanded from boards, their directors and their company secretaries since the start of the turmoil in the global economy. Never have their skills, knowledge and experience been so highly challenged; and never, ever have robust procedures and systems of governance been so vital.
What have we learned from the recent global financial crisis? Robust systems of governance cannot be sidelined:
It was within this context that I agreed to assist the Guernsey Financial Services Commission (GFSC) in developing a Code of Corporate Governance (the Code) for Guernsey’s finance sector, and also because I believed two things:
The GFSC’s Code of Corporate Governance was issued on 30 September 2011 and came into effect on 1 January 2012. It comprises just eight key principles:
So, the code comprises these 8 principles and also 35 pieces of guidance on best practice. It is intended to provide board directors and company secretaries with a useful tool, which allows them to demonstrate internationally accepted, good corporate practice. It is not, however, intended to become overly burdensome – otherwise it will have missed its mark. Indeed, the last thing that the practitioner working party who helped draft the Code wanted, was for its introduction to make local industry less competitive with rival jurisdictions.
In addition, the Code also does not seek to duplicate work already carried out by exchange listed companies, and as such, those companies who report against the UK Corporate Governance Code or the Association of Investment Companies Code of Corporate Governance, are deemed to meet the GFSC Code.
In its first incarnation, over two years ago, the initial draft of the Code spanned some 23 pages, but was subsequently ‘slimmed down’, as a result of extensive consultation with Guernsey’s finance industry. In fact, it has been arguably the most collaborative consultation process the GFSC has ever undertaken. The Code is now much more proportionate and takes better account of the nature, scale and complexity of companies, from small owner operated trust companies to large international banks.
The Code also recognises that ‘one size does not fit all’; the final version is much less prescriptive and represents a more workable document, which better reflects the governance needs of Guernsey’s finance industry. Corporate governance is about board behaviour, but is equally about company ‘performance’, not just ‘conformance’.
As a result of the global financial crisis, going forward, it is expected that there will continue to be a need for greater governance and oversight by boards and increased disclosure and transparency. There is likely to be a wider requirement for companies to declare and report in much more detail, and to more carefully consider such things as asset values, liquidity and credit risk, in addition to taking a closer look at business models. Annual business reviews and evaluations of ‘going concern’ status will also need to be taken more seriously than in the past.
However, ticking and checking against new rules will not produce better company performance. But, searching questions by directors about company activities and business models might. It is critical that boards have a full and proper understanding of the business being pursued by the companies they represent. It is also critical that directors and shareholders are not swamped with detailed information that is so voluminous they cannot see the wood for the trees.
For shareholders there is an obvious self-interest in good corporate governance. Empirical data has proved that it contributes to better company performance by helping the board discharge its duties in the best interests of shareholders; thereby delivering better shareholder value over the long term. But aren’t these best interests also firmly aligned with the duties of every director?
In Guernsey we have a first-class pool of professional and experienced directors, who already take their fiduciary responsibilities very seriously. The introduction of the GFSC’s Code of Corporate Governance will reinforce the message that we conduct ourselves in a highly professional manner in Guernsey, and show that we are in touch with what the market and investors want to see.
Indeed, it should give the Guernsey finance sector a demonstrable competitive advantage. At the end of the day, though, corporate governance is about getting the right people, with the right blend of skills, knowledge, experience and diversity (yes, including gender diversity!) doing the right things for the business.
Bottom line: It’s about a director’s behaviour – not about a set of rules.
Carol Goodwin is currently a director of Investec Bank (Channel Islands) Limited and also acts as a director for other associated Investec companies. In addition, she was recently Vice Chairman of Yorkshire Guernsey Ltd. and also serves as a non-executive director for a number of other financial services entities, including a FTSE 250 company and a variety of listed and unlisted investment fund companies.
An original version of this article was first published in Chartered Secretary, May 2012