Too much emphasis is placed on the financial aspects of corporate governance, with boards typically having insufficient HR expertise and focus on critical people issues.
CIPD response to code consultation
This was a key message in the CIPD’s response to the Financial Reporting Council’s consultation on changes to the UK Corporate Governance Code. The consultation was launched following the publication of the government’s white paper Restoring trust in audit and corporate governance.
The CIPD’s response, which was informed by discussions with senior HR members, supported the overall direction of the suggested amendments to the code, for example, to focus more on outcomes focused reporting and further emphasise the importance of boards overseeing actions to embed culture. We also welcomed proposals to widen emphasis in the code on equality, diversity and inclusion beyond just gender and ethnicity.
However, we highlighted that there was still too much emphasis on financial rather than people governance and expertise. We disagreed with the proposal in the consultation that the remit of audit committees should be expanded to include narrative reporting, including sustainability reporting, and where appropriate ESG metrics. In our view, there isn’t sufficient expertise and knowledge about ESG matters within most audit committees and they are unlikely to have the capacity to take on this expanded role.
There is a need for the code to highlight the importance of organisations considering the balance of skills and experience of the whole board as a team, in addition to the skills of the individual members, and to explain how the team make-up matches the challenges faced by the company.
We further recommended that only ‘objective criteria’ should be used in the context of succession planning in the code, rather than ‘merit’, to reflect best practice. We also called out the need for director training on EDI.
As part of our submission, we included the CIPD report on the value of people expertise on boards published in July 2023 which highlighted common errors made by boards from the perspective of chief people officers.
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In our response to the UK Financial Reporting Council consultation, we highlight the importance of HR and people expertise on boards
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