RSM warns of governance ‘ticking timebomb’

Following a string of high profile corporate collapses, almost all company boards expect an increase in legal and regulatory action over compliance failures

Despite concerns over increasing risk, less than one in four view corporate governance as critical, according to a survey by RSM, which warns of a ‘ticking timebomb’.

The poll of more than 200 UK mid-market business leaders found 96% expect to see an increase in the number of criminal prosecutions of those senior executives and organisations implicated for poor risk management, yet only 21% think corporate governance is critical to achieving success.

The survey also revealed that 28% of boards have no corporate governance standards or guidelines, while only 36% have allocated a dedicated corporate governance officer.

Richard Smith, partner and national head of risk assurance at RSM, said: ‘Our research reveals some unsettling truths, and consequently a ticking timebomb for some. On the one hand, boards overwhelmingly recognise the very real threat of prosecution for poor corporate governance practice, but on the other they remain reluctant to fully engage in a process that minimises those very risks and future liabilities.’

 The expected rise in prosecutions includes penalties for failing to manage the risks associated with non-compliance with regulatory and legal requirements.

Health and safety, and data security emerged as the greatest and most challenging risks, identified by over 45% of respondents. However, 21% either had informal guidelines (as opposed to formal, mandatory policies or published guidelines), no policy at all, or did not know what their position was in terms of health and safety, or data security.

According to RSM’s report, human trafficking and anti-slavery issues were of lesser concern. While 44%t believed that legislation and regulatory rules in this area would increase significantly over the next two to five years, only 20% saw this as the most challenging issue. As a consequence, nearly 40% had limited or no formal guidance or policy.

Carolyn Brown, partner and head of client legal services at RSM said: ‘The past decade has seen a major shift in understanding of what constitutes a well-run business. Performance measurement goes far beyond a company’s ability to maximise profit margins. Good business ethics and the ability to demonstrate those credentials through accountability and transparency are more important than ever before.

‘Business leaders recognise a tightening regulatory environment and the inevitable legal fallout. Failing to act on non-financial reporting, or corporate governance, will leave organisations exposed.’

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