A Year of Change
As we reached the end of a year which brought significant developments in regulation and legislation, Governance & Compliance Magazine took a look at the events that have prompted discussion at board level in the past 12 months.
Remuneration under scrutiny
The topic of executive pay has been rarely out of the headlines in 2014. Legislation introduced in the wake of public outcry and political debate requires companies to justify their strategy to shareholders. Leo Martin, Director of Business Ethics Advisers at GoodCorporation, tells us that the impact, āis already being felt with discussions about the best way to structure directorsā remuneration to ensure long- term successā. Mala Shah-Coulon, Director of the Corporate Governance Team at EY believes this has āacted as a restraining hand on pay and bonusesā.
Further developments
When we asked the team at the Competition and Markets Authority (CMA) what they saw as the most significant development in governance during the past 12 months, it is no surprise that they cited the creation of the CMA itself in April 2014. The authorityās power to conduct compulsory interviews and impose financial penalties on businesses and individuals that fail to cooperate with investigations reflects, āa step change in the authoritiesā appetite for enforcementĀ of consumer and competition law, and stronger ability to meet that appetite.ā
Leo Martin draws our attention to the UK Bribery Act which has prompted a number of sectors āto set up compliance functions for the first timeā. He feels āgeneral counsels are recognising that compliance has a set of specialist business skills which are not the same as legal knowledge or expertise.ā
Fines and penalties
Many of the changes that 2014 brought have had a positive impact on the corporate world, but there have also been a number of scandals that resulted in reputational damage and financial penalties.
The financial services industry has had a ātough timeā adjusting to regulation by the FCA and PRA, David Thompson says. This is evident by the number of companies that have faced āfines or redressā including:
Payday lender Wonga ā Ā£2.6 million to customers for unfair debt collection practices
RBS/NatWest ā fined Ā£14.5 million for failings in advised mortgage sales Barclays ā Ā£37.7 million for failing to properly protect client custody assets
Deutsche Bank AG London Branch ā Ā£4.7 million penalty for incorrectly reporting transactions
Coop Bank ā under investigations by the FCA regarding decisions and events up to June 2013
There is some uncertainty about what may be required to avoid such penalties. Leo Martin notes that corruption scandals in āpharmaceuticals, engineering and defenceā have prompted many companies to ensure they have adequate procedures. However, he points out that āunderstanding what the SFO will judge as āadequateā is still a significant challenge.ā This could lead companies to āwaste money putting in unnecessary controls, or worse, fail to put in place the controls that will actually protect the company.ā
Published in the December issue ofĀ Governance & Compliance Magazine
Read the article in full –Ā A year of change