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A New Decade – More Board Regulation

The last decade opened with the Financial Crisis; the new decade will bring increased Board regulation.

“The effects of the 2008 financial crash cast a long shadow forward. Trust in leaders and in business itself appears to have fallen…” Brydon Review, December 2019.

Fidelio has seen a flurry of activity in the world of audit and corporate governance over the last twelve months or so, in particular in the UK, with the publication of the Kingman Review of the Financial Reporting Council (FRC), the Competition & Markets Authority's Statutory Audit Services Market Study and, most recently, the Brydon Review quoted above. All these publications recommend far-reaching change: a reconstituted and re-named Financial Reporting Council, a new audit profession, and restructuring of both the audit market and the accounting firms engaged in it. The new regulator is to be called the Auditing, Reporting and Governance Authority (ARGA).

The implementation of recommendations from these reports will require legislation from a government pre-occupied with Brexit, and which already shows some signs of dragging its feet. Following a Queen’s Speech which contained only a vague reference to the issue, Whitehall has come under fire from Sir John Kingman for undertaking to legislate only “when time allows”.

In Fidelio’s view some of Sir John’s recommendations could potentially have far-reaching implications for all Board directors: yet so far these have attracted much less attention than audit and moves to split up the “Big Four”. As currently constituted the FRC has power to sanction members of the accounting professional bodies, but no regulatory power over other “non-member” Board directors. This is clearly anomalous and set to change: recommendations 36-38 of the Kingman Review propose that the FRC’s successor:

“develop detailed proposals for an effective enforcement regime in relation to Public Interest Entities that holds relevant directors to account for their duties to prepare and approve true and fair accounts and compliant corporate reports…the regime for non-member directors should follow the principles of the Audit Enforcement Procedure, with the same threshold for action to be taken, and a graduated range of sanctions”

The review recommends that “relevant directors” include Chair, CEO, CFO, and Audit Committee Chair, and while this appears to exclude other non-executive roles, at Fidelio we’d argue the responsibility to “prepare….compliant corporate reports” is broader and can be interpreted to include all Board members. Reporting requirements for UK listed companies increasingly go beyond the purely financial – for example directors’ reporting under Section 172 (1) of the Companies Act, or the requirement under the UK Code to report on the work of both the Nominations and Remuneration Committees.

While the timetable for change remains uncertain, in Fidelio’s view more formal regulatory oversight of all Board directors is on its way, combined with a tougher approach to enforcing existing law on director conduct via the Insolvency Service. The Kingman Review states:

“Although the regulator should be able to impose a range of sanctions, the Review recommends that action relating to director disqualification should continue to rest with the Insolvency Service. The Review does, however, recommend that the FRC should have the necessary powers to investigate directors and refer cases to the Insolvency Service”.

The implications for Boards internationally are clear: increasing public scrutiny and an expectation of the highest standards of professionalism, expertise and ethical conduct from all directors. The process starts with the Nominations Committee, with a rigorous and transparent approach to Board composition and appointments, and continues with regular reviews of Board effectiveness yielding action plans for improvement.

For more details on how Fidelio Partners can assist your Board with effectiveness, composition and establishing trust in an age of intense scrutiny, contact Gillian Karran-Cumberlege on


Fidelio Partners Board Development & Executive Search Ltd
60 Petty France - London - SW1H 9EU

+44 (0) 20 7759 2200

FIDELIO PARTNERS BOARD DEVELOPMENT & EXECUTIVE SEARCH LIMITED is a company registered in England and Wales with Company Number OC345377.
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