The Corporate Governance Journey Continues

By Gillian Lees, for her blog at Chartered Institute of Management Accountants, May 25, 2010

Another milestone will be passed this week on the epic journey of corporate governance when the UK Financial Reporting Council (FRC) issues its revised corporate governance code for UK listed companies.  This follows a year-long review and reflects governance thinking in the light of the global financial crisis.  For another example of a post-crisis code, take a look at the King III report from South Africa which I looked at in a previouspost.

Back to the UK.  The first bit of good news is that for those of you who have been wondering why on earth it was called The Combined Code on corporate governance, the mystery will be laid to rest.  The code is to be renamed the UK Corporate Governance Code.

The main changes will be focused on emphasising key messages and behaviours rather than adding a long list of new requirements, but there is one particular new provision that is worth thinking about – in essence, companies are going to have to include in their annual reports an explanation of the basis on which they generate revenues and make a profit from their operations (the business model) and their overall financial strategy.  It looks deceptively simple, but it could provide a real challenge for companies to articulate their business models clearly.  Nevertheless, this could be one of those new requirements that provide something of real value as the very process of mapping out the business model could expose some useful learnings along the lines of ‘this model makes no sense whatsoever’ and could help to shed some light on how the model might be developed, for example, into new products or markets….(continue reading)

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