Corporate Governance: Stock Exchange code puts new onus on PR - The London Stock Exchange’s new corporate governance code could force companies to give in-house communications departments greater involvement at board level

Corporate governance is not a new issue. Public and shareholder concern over spiralling executive pay prompted the publication of the Greenbury report in July 1995 and it is almost six years since the publication of the Cadbury Report, which sought to introduce a code of practice for the running of companies.

Corporate governance is not a new issue. Public and shareholder

concern over spiralling executive pay prompted the publication of the

Greenbury report in July 1995 and it is almost six years since the

publication of the Cadbury Report, which sought to introduce a code of

practice for the running of companies.



The London Stock Exchange’s code of conduct on corporate governance,

when it comes into force in January, should mean more openness about

sensitive issues such as directors’ pay.



Listed companies will have to state in their annual report that they

have complied with the code. Where they have not, companies will need to

highlight the fact by telling their shareholders why. Communications

departments and consultants will have a role in safeguarding business

reputations in this climate of greater disclosure.



Some believe that the Stock Exchange code will force in-house teams to

adopt closer links with remuneration and audit committees to determine

exactly how to release information on such sensitive matters as

increases in executive pay or lack of compliance with the guidelines on

company board structure.



While companies will be obliged to state in their annual reports whether

or not they complied with the code, communications teams may decide that

it is better to pre-empt this with detailed press announcements to

convey a stronger argument.



One company secretary at a major banking group, believes the new code

will have serious implications: ’The new guidelines don’t represent a

huge follow-on from Cadbury and Greenbury. But the big change comes in

having to report where a company is not compliant with guidelines. This

will be a major challenge for some companies.’



Jonathan Clare, chairman of Citigate Communications, believes the code

should beseen as offering opportunities for communications departments:

’Whatever the statutory requirements, any sensible company will do more

than pay lip service to the code by hiding the details away in the small

print.’



Some companies are already adept at staging a sustained communications

effort to head off accusastions of flouting corporate governance

standards.



In 1993 British Steel appointed Sir Brian Moffat as chairman and chief

executive, a clear breach of the recommendations of the Cadbury Report

that companies should not combine the two roles under one person.



Media criticism brought a swift response from its communications

team.



It outlined the reasons for the combination of roles and stated British

Steel’s commitment to corporate governance with the appointment of a

non-executive director, Sir Nicholas Goodison, who was given formal

responsibility for ensuring the company complied with the Cadbury

report.



More recently, companies such as Camelot and Yorkshire Water, accused of

paying executives too much, have provided detailed responses to the

accusations. Camelot PR head Lisa Bond says that it has a media strategy

for the release of details on salaries and bonuses. This year Camelot

correctly predicted that many newspapers would feel that ’fat cat’

stories were old news and focused on releasing detailed information via

business pages.



The code is intended to ensure such a reaction is applied in all

cases.



In 1993 British Steel was under no obligation to provide such a swift

and clear response to criticisms. However, most in-house communications

departments would argue that corporate governance best practice is

already being applied.



Peter Gavan, director of corporate communications at FTSE-100

engineering group BTR, says: ’BTR is run on a day-to-day basis by the

executive committee of which I am a member. Provided a communications

director is at executive level, then they are close to all the issues

aired and have all the necessary contact with people such as the

chairman of the remuneration committee.’



Communications directors who sit at board level argue that they would

not be doing their job if they were unaware of contentious corporate

governance issues. Gavan sees the code as a useful checklist to ensure

that his company is proactive in providing information to

shareholders.



Agencies are also assessing the implications for clients. Clare says

that Citigate’s clients are generally in favour of such guidelines and

that most are comfortable with increased disclosure of information.

Charles Weston, a consultant at Financial Dynamics, agrees but says

there is still an education process to go through for agencies and their

clients. He believes it is important to identify issues of concern

early, particularly where a company does not comply with the code, and

work closely with the communications department on detailing a strategy

of how to communicate this.



It has taken years of consultation for a finalised version of the Stock

Exchange’s code to be published. It would be wrong to say that it will

seriously change the job of communications teams at listed

companies.



However, it will make some more proactive and strategic in disclosing

information which can only be good news for the companies involved and

their shareholders.



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