In a month when we witness the change in President of the United States of America we are moved to reflect on the importance of good corporate governance and behavioural standards. 

As the system of rules, practices and processes by which an institution is directed and controlled, Corporate Governance has the power to be both beneficial and detrimental.  In a previous post we wrote about corporate governance in light of the new Financial Reporting Council (FRC) rules that came into force in July 2019. 

However, with the storming of Capitol Hill still fresh we are prompted to revisit a blog looking at what can happen when you take your eye of the corporate governance ball. This is particularly pertinent after the news that Patisserie Valerie found £10M in ‘secret’ overdrafts. These that follow are all extreme examples but should serve as warnings to others.

Bullying Enquiry into Home Secretary

In November 2020 there was a lot of chatter in the news and on social media about Priti Patel and bullying. Following the allegations an enquiry was conducted into ministerial standards which found the ministerial code had been broken. In the midst of bullying allegations colleagues leapt in to defend the Home Secretary.  A number noted how hard working and determined she is.   Although that may be both true and desirable in a cabinet minister, that certainly should not be the point.  If there is bullying, being competent is not a defence or mitigation for such behaviour. It is not collateral damage of success. A summary of the standards report is available here the author, Chief Sir Alex Allen, chose to resign, after the report was published and Ms Patel remained in her post.

Tesco’s Social Media Meltdown

Back in 2013 it was discovered that horse meat had entered the food chain ending up in products from several supermarkets that were labelled as beef. The UK’s largest chain, Tesco, was, perhaps, an easy target for those looking to make light, and memes, of the situation and images such as these quickly surfaced all over social media.

In that respect there was not much that Tesco could do to prevent these appearing but they didn’t have to make matters worse by tweeting “It’s sleepy time so we’re off to hit the hay!” Remember these days things live on forever, even now if you do a Google search, some eight years later, you will get about 373,000 results.

Enron files for Bankruptcy (and takes down Arthur Anderson with it for good measure)

Enron were a US energy company formed in 1985 following a merger of other, smaller, energy companies. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s Board of Directors and Audit Committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues.
In December 2001 Enron filed for bankruptcy which also led to the downfall of auditor Arthur Anderson and the introduction of the Sarbanes–Oxley Act which “increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.”

Stafford Hospital – Poor Care and High Mortality Rates

While the FRC code doesn’t apply to the public and charity sectors that doesn’t mean that the sort of corporate governance issues seen in the private sector can’t happen there. One such failure was at Stafford Hospital where concerns over poor care and high mortality patient rates had ramifications for the rest of the NHS.
Concerns were initially raised in 2007 and this was followed by an investigation that identified “apparently high mortality rates in patients admitted as emergencies”. This investigation was followed up by a full public inquiry in 2010 led by Sir Robert Francis which, amongst many recommendations, suggested that there should be more honesty and openness in the NHS and the Freedom to Speak Up Guardian role was as a direct result of that.

VW Emissions Scandal Reputation Damage

VW have long been seen as a quality car manufacturer but this was called into question late in 2015. It was discovered that the software controlling the cars engines contained a feature that made the emissions seem much better than they actually were. During tests they appeared to emit 40 times less emissions in tests than on the road. The fallout from the scandal has been costly for VW with the total including fines and buy-backs topping €27bn. Another consequence of the issues has been many of VW’s marques move away from diesel engines completely. How long it takes to repair the damage to its reputation is anyone’s guess.

GMB unions sexual harassment report

The investigative report into GMB’s management of sexual harassment was carried out by Karon Monaghan QC in August 2020. Extracts from Karon Monahan’s report sited:

“The GMB is institutionally sexist. The General Secretaries and all regional secretaries are, and always have been, men. Women are underrepresented throughout the GMB’s ranks.

“The evidence I have heard indicates that there are, and have been, regional secretaries who maintain power largely through bullying, threats and victimisation and by creating a climate of fear. Sometimes sexual harassment is used as a form of bullying with examples given to me of men deliberately sexually harassing women in public to humiliate and embarrass them.”

The investigative report gives 27 Recommendations and in summary, acknowledges that it will take robust and committed leadership to successfully push this through. And those who do try to drive through change must be supported and applauded. Recommendation 21 is that a “safe place” is permitted to allow anonymous reporting with monitoring capabilities, so management are able to measure and report the number of cases raised.

The immediate trigger for the investigation was the receipt of an undated letter addressed to Barbara Plant, the President of the GMB. The letter contained allegations of a “serious sexual assault (rape)”, drug use and sexually predatory behaviour, by a senior man within the GMB. 

One complaint of a serious incident of sexual harassment was made following the correct procedures, which an internal investigation found reasonable grounds to conclude that the accused had committed an act of gross misconduct and the disciplinary process should go to the next stage. Upon which a senior GMB man intervened and assisted ‘the accused’ via a ‘compromise agreement’ to find alternative employment elsewhere.

Resignation of Greg Clark from FA over “unacceptable” language 

November 2020 saw the Chairman of the Football association resign after his use of unacceptable language and the expression of racial stereotypes. This took place on a Zoom call with the Department for Digital, Culture, Media and Sport (DCMS) select committee. According to the BBC, 3 years earlier Mr Clark, was criticised by the same committee of MP’s, and reminded that language matters, after referring to institutional racism as “fluff”. This series of events has led to MP’s, the media, the public and footballs own Kick it Out campaigners questioning the level of commitment to diversity within the FA. 

What can you do to avoid such Corporate Governance issues?

All the above have high profile with plenty of coverage in the national media. A lapse of corporate governance doesn’t have to be as high profile for it to similarly affect your business. It could be just an article in the local press or trade publication that has an impact on a similar scale.

In many of the cases above someone knew about the issues but didn’t come forward. What can board members, managers and other interested parties do to help ensure they hear of similar issues early? Keep your ear to the ground. Talk to staff and be interested.

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