December 12, 2014 Ownership, Governance and Control
With Christmas on its way and the tills merrily jingling, two regulating bodies have taken the opportunity to remind retailers and others of the importance of strong control and governance. First up was the Financial Reporting Council (FRC) who reacted to recent headline events to remind those in the retail and supply sectors of the importance of providing clear and relevant information in respect of their arrangements with suppliers.
Complex supplier arrangements may include ‘fees, contributions, discounts, multiple offers and volume rebates’ all of which, according to the FRC, are a regular feature of supplier contracts in a number of sectors, including the retail sector. Where such arrangements exist, they may impact an investor’s view of an organisation and of its strength. Accordingly the FRC now expects to see ‘high quality disclosure’ of such arrangements and warns boards that they will be focusing on such arrangements in their review of accounts and returns in 2015.
The second warning comes from the Payment Systems Regulator (PSR). In a speech on 8 December the PSR’s Managing Director, Hannah Nixon, highlighted plans to drive payment systems forward to meet the needs both of consumers and users. Calling on the payment industry to drive change forward Hannah Nixon said that “realising a vision of world class payment systems will require effective industry-wide strategy development, setting, and delivery.” These, she expects, will be delivered via attention to three key areas, namely:
- the industry strategy setting process
- ownership, governance and control of payment systems, and
- access to those systems
The first and last elements of this strategy call for industry players to work more closely together, both to deliver a coherent strategy and to open up access to those looking to enter the market but it is the middle element which interests us the most. According to Hannah Nixon “the governance of payment systems is not clear; decision making is opaque and known only to a select few.” In the light of this the PSR is proposing changes which will ensure that the interests of service users are represented at board level and that appropriate board minutes and votes are published.
Whilst the proposals mentioned above only relate to payment systems and supplier arrangements, they have important implications for other areas. There is a common theme emerging from the regulatory bodies and that is a theme of clearness, openness and accountability. Boards can no longer operate in isolation, rather board members are now expected to represent the long term interests of investors, consumers and the organisation. Governance now means something far more than simple control and the regulators are expecting and looking for change.
