Striking a balance for good governance

Governance is clearly top of minds for FTSE leaders this year. It was a persistent theme in our Raised in London 2024 survey, where the UK’s standards in this field were widely cited as one of our greatest strengths. At the same time, some FTSE leaders felt there is still more to do and that some adjustment to the UK regulatory environment is in order.

Good governance was ranked in the top three attractions of the UK market for foreign investors, while the related theme of regulation was cited as the most attractive feature. FTSE leaders clearly recognise the strengths of our governance regime and its valuable role in attracting capital to the London market.

The UK can be proud of its record in this field. The Cadbury Code launched in 1992 was the first corporate governance code in the world with recommendations focused on the control and reporting functions of boards, and the role of auditors. and has been adopted as a model by many other markets.

But while it was recognised as a great strength in attracting capital to London, governance was also named as one of the key areas that could be improved. A small but significant proportion (12%) of respondents said reform of over-rigid governance would help attract more issuers to London. A similar proportion (11%) cited the burden of governance as an obstacle to their strategic ambitions.

The high value placed on governance as one of the UK’s key attractions in our survey suggests that the UK should be proud of its governance record. But the findings on over-rigid governance suggest that further reform and refinement is needed.

Governance must be effective, but not a burden

The challenge is to find the balance between maintaining the standards of governance that make London such an attractive market for investors, including foreign capital, while easing the burden of governance on companies so it is not an obstacle to business ambition.

Our survey showed that FTSE leaders want to see an easing of the burden. When asked what they felt should be the top priority for the government, 61% wanted to see a streamlining of corporate governance.

It is still early days for the Labour administration, but in the Chancellor’s maiden Mansion House speech, Reeves laid out the party’s plans to share its growth-focused remit with regulators.

Meanwhile, the Financial Reporting Council (FRC)’s updated Corporate Governance Code published earlier this year was a positive step forwards and will remain an area of ongoing focus. The FRC has now launched its consultation on the Stewardship Code, which defines the principles for certain types of investors, such as asset managers. in terms of how they invest and therefore how they interact with companies and their own governance. One of the recommendations in our Raised in London 2024 report is that stakeholders from across the financial services industry seize this opportunity to participate in the review.

As our survey shows, companies recognise that good governance is a benefit for UK businesses and a key attraction for foreign investment. It is therefore crucial to retain the strength of our governance regime. At the same time, we need investors attracted by that good governance to remain open to amending any overly burdensome governance requirements that are an obstacle to business growth.

Historically the UK has struck a good balance in governance, but we must not rest on our laurels – careful review and reform is essential if we are to retain our world leadership position in this area.

The challenge is to find the balance between maintaining the standards of governance that make London such an attractive market for investors, including foreign capital, while easing the burden of governance on companies so it is not an obstacle to business ambition. James Taylor, Co-Head of Investment Banking, Deutsche Numis