Good corporate governance and poor corporate governance

Where does Post Office Limited rank (not a serious question, except for 000s of sub postmasters and their families) .

The Cadbury Report which was released in the UK in 1991 suggested that "Corporate governance is the system by which businesses are directed and controlled."

Good corporate governance is a key factor in underpinning the integrity and efficiency of a company.

Poor corporate governance can weaken a company’s potential, lead to financial difficulties and in some cases, cause long-term damage to a company’s reputation. I suggest that Post Office Limited (POL) ticks all these “boxes” Below are some very brief notes about these topics. As you know I have a particular interest in corporate governance (including directors’ duties) as these apply to POL. It ought to be fairly clear, although readers should decide for themselves , which "side of the road" the past and current directors of POL sit, after 20 years or more of the Post Office Scandal.

As I mentioned in my recent paper dealing with directors’ duties , I will also say here that a massive failure in corporate governance can in turn have a terrible impact on the lives of hundreds or indeed many thousands of people. I will highlight some key/relevant words and phrases below.

Corporate Governance is a continuous process of applying the best management practices, ensuring the law is followed in the way intended, and adhering to ethical standards. This ought to lead to effective management, meeting stakeholder responsibilities, and complying with corporate social responsibilities. Governance should contain policies and rules to maintain a strong relationship between the owners of the company, the Board of Directors, management, and various stakeholders , normally employees, customers, government, suppliers, and the general public.

When an organisation such as POL ,has only one shareholder -- essentially the UK Department for Business and Trade-- it certainly complicates the picture.

?The core principles of corporate governance

Corporate governance refers to the framework of policies and guidelines that describe a company’s conduct, decision-making and practice. It is built upon four key principles:?accountability,?transparency,?fairness?and?responsibility.?

For the board of directors, keeping to these principles is vital. Non-compliance is almost certain to damage business integrity, investment and projected profitability. POL proves the point. Luckily for its boards , past and present , it is (probably) still important enough not to be shut down entirely, although some might have heard Alan Bates suggest at Westminster recently it should be sold to Amazon for ￡1.00.

Corporate governance ought to be the directing force of a business. I suggest it includes the following. I don’t think it would be harsh to say POL failed each time , big time—in my view:

·?????? Ethical behaviour?????(Non- existent)?

·?????? Financial reporting???(Still to be investigated properly)

·?????? Hiring and firing (Failed)

·?????? Legal compliance???? (Essentially ignored)????

·?????? Corporate strategy???(Reputation “ trashed”)

·?????? Compensation???????? (Think “ BonusGate”)?????

·?????? Risk management???(“Cavalier” attitude at best)??

?The approach?around each of the above should be shaped by the four core principles.

Accountability

Corporate accountability refers to the obligation and responsibility to give an explanation or reason for the company’s actions and conduct.

In general terms and in brief the board should:

• present a balanced, understandable assessment of the company’s position and prospects.
• take responsibility for deciding the nature and extent of the significant risks it is willing to accept.
• maintain sound risk management and internal control systems.
• establish formal and transparent arrangements for corporate reporting and risk management.
• communicate with stakeholders regularly, to give a fair assessment of how the company is achieving its business purpose.

??Transparency

A board should exercise openness and a willingness to disclose truthful, accurate and timely information regarding the company’s financial, social and political position to shareholders, stakeholders, consumers and the wider community.

?Fairness

Effective corporate governance ought to involve working towards good business ethics. Businesses that exercise favouritism risk losing investors, suppliers, consumers and public support.

For example a board that considers the interests of all of the company’s constituencies is exercising a good understanding of the ideas of fairness.?

Red flags of bad corporate fairness include internal corruption and an incompetent approach to leadership.

?Responsibility

The Board is given authority to act on behalf of the company. It must accept full responsibility for the powers that it is given and the authority that it exercises. It is responsible for overseeing the management of the business, and affairs of the company. In doing so, it is required to promote the success of the company ( section 172 Companies Act 2006). Accountability goes with responsibility. The Board is accountable to the shareholders for the way in which the company carries out its responsibilities. [ The sole shareholder in POL—ultimately, as noted, the Department for Business and Trade-- has now and has had for many years a seat on the board. Whether that director took an active, or passive, or no part in POL’s corrupt behaviour and its perverting the course of justice , remains to be seen. [I am not sure this is in any way what those who created the corporate governance ideas and codes , were thinking about when they did so].

What does good corporate governance look like?

I’m perhaps repeating myself. However , to make the point particularly in connection with the numerous boards of POL, comprising some 80 directors since 2000, overall, good corporate governance should be built upon transparent, business practices and internal processes (enforced by the four core principles noted above).

More specifically, ?effective corporate governance?includes:

·?????? Clarify the board’s role in determining strategic direction

·?????? Understand the importance of/work to improve the board-CEO relationship [Note the toxic relationship between the Chairman, fired by the sole shareholder, and the CEO]

·?????? Implement and exercise sound risk management and internal control systems

·?????? Ensure each director has the knowledge, skills, experience and resources needed

·?????? Appoint a competent chairperson with exceptional leadership qualities.

Benefits of corporate governance

Aside from financial viability and improved business opportunities, good corporate governance aids organisations in avoiding penalties for non-compliance and has been shown to improve the morale of employees.

?The Post Office Scandal highlights the critical importance of maintaining transparency, integrity, and accountability in business operations. Businesses must prioritise open communication, sincere commitment to investigating concerns, and avoiding the pitfalls of cover-ups. Upholding ethical standards and promptly addressing issues can prevent reputational damage, legal consequences, and, most importantly, harm to stakeholders. Good governance is not just a legal obligation but a fundamental element for sustaining trust and long-term success in any organisation. [ No comment].

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And this too which, as I have noted before, may not be a technical legal point, but using the “smell test” and some common sense is often a useful yardstick when thinking about many of the matters described in this note.? These, yet again, are the final paragraphs from my Submissions to the Post Office Enquiry. It all ought to be obvious, but maybe not to everyone.

?Finally, “The smell test”

?“Did anyone stand back and ask themselves the simple question – is this right?”

?Justice Neville Owen, Royal Commission into the collapse of HIH Insurance, 2003.

?Owen J said: “There’s a moral underpinning to our system of values and we have to keep re-examining them. When you read the reports coming out of the Royal Commission, you ask the question – forget about issues of right and wrong – but what in the hell were they thinking? Did they ever apply the olfactory [“smell”] test? Did they ever go back and ask themselves, ‘What would my grandmother have thought of this?’”