Corporate Governance Life-Cycle GOVERNANCE in GOVERNMENT DOES IT EXIST? SIR JOHN BOURN COMPTROLLER and AUDITOR GENERAL

Corporate Governance Life-Cycle Corporate Governance “ …the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies..responsibilities of the Board include setting the company’s strategic aims, providing the leadership to put them into effect, and supervising the management of the business and reporting to shareholders on their stewardship…”

Corporate Governance Life-Cycle Areas of Concern  Concentration of power in small number of directors  Lack of balance in Board composition  Deficiencies in accountability and audit  Over-generous remuneration

Corporate Governance Life-Cycle The Private Sector Response 1992 Cadbury Code 1994 Greenbury Report 1998 Hampel Report 1998 Stock Exchange Combined Code 1999 Turnbull Report 2003 Higgs and Smith Reports

Corporate Governance Life-Cycle Concentration of Power Private Sector Solution – separate the roles of Chairman and Chief Executive Officer. Departmental Position – power is concentrated in the Secretary of State. No formal separation between strategic and operational matters.

Corporate Governance Life-Cycle Unbalanced Boards Private Sector Solution - Not less than one third of the Board should be Non Executive Directors, and their independence and effectiveness should be strengthened. Departmental Position – No Boards and therefore no Non-Executive Directors.

Corporate Governance Life-Cycle Deficiencies in Accountability and Audit Private Sector Solution – Sir Robert Smith’s proposals for an Audit Committee of Non Executive Directors, which would:  Monitor the integrity of financial statements  Review internal controls  Recommend appointment and remuneration of external auditors  Oversee supply of non audit services  Monitor and review the external auditor’s independence

Corporate Governance Life-Cycle Deficiencies in Accountability and Audit Departmental Position – Treasury has recommended that Departments set up their own Audit Committees. These are:  Primarily made up of insiders  Subject to the authority of the Permanent Secretary as Accounting Officer

Corporate Governance Life-Cycle Over-Generous Directors’ Remuneration Private Sector Solution – Establish a committee of Non Executive Directors, independent of management, to set senior staff remuneration. Departmental Position – Senior staff salaries determined by a general civil service system ultimately controlled by the Prime Minister.

Corporate Governance Life-Cycle Conclusions on Corporate Governance Dep’ts Position Concentration of Power  Unbalanced Boards  Deficiencies in Accountability and Audit  Over-Generous Remuneration //

Corporate Governance Life-Cycle NAO’s Role in Supporting Good Corporate Governance Review of Internal Control Statements Recommendations for risk management and internal control arising from the audit process Attendance at audit committees NAO VFM studies Participating in initiatives to promote good corporate governance practice across the sector