Pale, male and stale; will new corporate governance code succeed in changing boards?

The changes to the Financial Reporting Council’s corporate governance code outlined by the regulator last week certainly seem to talk the talk, but the big question is do they go far enough to help boards step up their game when it comes to adequately assessing risk appetite and tolerance.

To blame failings in corporate governance alone for the economic crisis or banking collapse would be unfair to say the least. Nonetheless, with the publication of this new code, the FRC is effectively holding up its hands and admitting that its previous Code quite frankly wasn’t up to scratch.

The accounting regulator is certainly being bold in its attempts to shake up the accountability of companies and their boards. And the FRC must be applauded in tackling head on some of the failing of the system, which many believe, have done little to boost confidence in businesses and those who run them.

Among key changes include the requirement for directors at the UK’s FTSE 350 index companies to face re-election every year instead of every three years to make them more accountable to shareholders. The suggestion is not without its critics, who say such a move could be detrimental to long-term planning, make boards less stable and discourage robust challenges in the boardroom.

Baroness Hogg, FRC chairman, is unperturbed by those critics. She points to the likes of BP, AstraZeneca, Vodafone Group and Pearson, as examples of companies that already hold annual elections for board members with no obvious negative side-effect.

As for calls for directors’ performance-based pay to match a company’s long-term risk policies, surely that’s just a case of good old fashioned common sense. Although just because the principle is founded on solid business practice, doesn’t mean it will necessarily be easy to implement. It will likely take far more than common sense for certain industries and individuals to willingly accept substantial pay cuts.

One of the biggest challenges presented by the new code is surely the call for greater gender diversity on boards. It’s a more than admirable objective, don’t get me wrong. But making any inroads away from the ‘male, pale and stale’ is a hefty challenge in anyone’s book.

Diversity isn’t just an aspiration for today’s forward thinking boards, as a means to avoid what Baroness Hogg refers to as ‘group-think’ but widening the talent pool from which to fish is a harder nut to crack. It’s something we’ve been harping on about for years. Perhaps the new corporate governance code will turn it from a hollow platitude to a true business aspiration.