Steve Giles is a consultant and lecturer in governance, risk and compliance

‘Only when the tide goes out do you learn who’s been swimming naked.’ This quote from Warren Buffet warns investors that the risk profile of a company cannot properly be assessed until it is tested by adversity. It serves as a mantra for accountants, insolvency practitioners and fraud investigators the world over.

But not for the UK government. It has chosen to slam the brakes on the carefully calibrated corporate governance and audit reform programme, started back in 2016, at exactly the wrong time. The UK’s economic tide remains out, with a combination of high interest rates and the withdrawal of pandemic-era support making corporate Britain vulnerable to disorderly collapse and accounting scandal.

One problem with the government’s new position is its short-term, political approach

The government risks failing to act on the lessons of the recent past. High-profile corporate collapses such as BHS and Carillion undermined both public trust and investor confidence. The reforms aimed to address this with tougher regulation focusing on the conduct and quality of audit and sharper accountability for directors. However, the government is now unwilling to follow through on those reforms, creating more uncertainty for business while failing to mitigate the risk of headline company failures in the future.


Three decisions, bunched together in October and November 2023 (see the AB article ‘Corporate governance reform rolls back‘), chart the unravelling of the reform programme:

  • the sudden withdrawal of draft legislation to create important new corporate reporting requirements including annual statements on resilience, distributable profits and material fraud
  • the failure to include in the King’s speech the legislation needed to modernise audit, corporate reporting and governance through the creation of a new, more effective regulator
  • the announcement by the Financial Reporting Council (FRC) of a major scaling-back of its proposed revisions to the UK corporate governance code.

The government claims it is responding to company concerns that, given the current economic pressures on businesses, the reforms are onerous and disproportionate. It now prioritises pragmatism – simplifying rules, withdrawing ‘burdensome’ legislation and cutting red tape to support UK growth and competitiveness. It promises a new, more targeted reform package in the future.

Richard Moriarty, the FRC’s CEO, expresses similar views in his November policy update. He acknowledges ‘broad stakeholder consensus’ for the reform programme but nevertheless, having considered ‘the full range of feedback we received’, concludes that ‘the right balance at the current time’ is to take forward only a small number of the original 18 code reform proposals.

Business leaders are not opposed to tougher standards – quite the opposite


This dramatic change of direction has disappointed many commentators in the accountancy profession and the wider business community – not least ACCA.

‘The whole package of reforms needs to be passed,’ says Glenn Collins, ACCA’s head of strategic and technical engagement. ‘Apart from improving audit quality, there is also a need to improve corporate governance to make sure the UK is viewed as a transparent and attractive business environment.’

One problem with the government’s new position is its short-term, political approach. Another is its likely failure to engage any of the key corporate governance stakeholders – businesses, investors or the public.

Bring it on

Despite corporate lobbying of the government, most business leaders are not opposed to tougher standards – quite the opposite. From my work with more than 90 directors and senior managers at the Institute of Directors since October 2023, here is what I have observed:

  • Seeking certainty. Businesses crave consistency from government above all – in corporate governance just as much as in taxation policy.
  • Large companies can cope. The CEO of a large private company told me that, while new regulations require extra work, that work is not usually onerous – her business is able to assimilate rule changes smoothly.
  • Good governance is valued. All directors, including those of SMEs not directly affected by the proposed reforms, understand the importance of improving standards. No one disputes that it is worth investing time and effort to achieve good corporate governance.
  • Audit frustration. Many directors question whether the audit process delivers value for money and are frustrated that long-promised audit reforms are being delayed.
  • Accountability. The Insolvency Service’s decision in October 2023 to drop its disqualification case against five former non-executive directors of Carillion magnifies concerns directors have over perceived low levels of accountability in the UK.

Prudent controls and full transparency are not necessarily anti-competitive

Investors onside

The government is shelving its governance reforms while pressing ahead with simplifying the listing rules. It hopes deregulation will boost the attractiveness of UK capital markets. But one side-effect is that London will become a riskier place to invest in, which will inevitably deter some investors.

Investors look for growth opportunities but they want safeguards too. Stronger reporting of the effectiveness of internal controls is one of the FRC’s reform proposals that will be taken forward into the new code. Moriarty is keen to differentiate the UK’s position from the ‘much more intensive approach adopted in the US’. But it was the investor community in the US that pressed for the Sarbanes-Oxley Act after Enron’s collapse. Prudent controls and full transparency are not necessarily anti-competitive.

Public trust

Periodically, the public’s usual indifference to corporate governance is transformed into outrage by high-profile company failures and scandals, as demonstrated by the Post Office case. Trust in business then plummets. There are clear warning signs of stress in the UK.

Insolvencies are at their highest level since 2009. Disquiet over the collapse of high-street retailer Wilko in August 2023 with the loss of more than 12,000 jobs continues. And ongoing investigations into organisations as diverse as the Post Office, Patisserie Valerie, London Capital & Finance, Greensill Capital and PPE Medpro are likely to uncover examples of governance shortfalls, poor conduct and egregious behaviour by business leaders.

The government’s decision to walk away from its own reform programme looks poorly timed, unwise and increasingly risky.

More information

Read the FRC’s January 2024 update of the UK Corporate Governance Code