Some of the key themes in the Japanese and UK Codes are similar, for example the responsibillities and the independence of the Board, the internal risk and control framework, and engagement with stakeholders. However, implementing corporate governance in a practical and invulnerable way is often much more challenging than outlining the guiding principles.
Lessons from UK Experience
The UK experience could provide valuable lessons in the following areas:
Board Composition and Challenge
A Board must consist of directors who have the right mix of technical understanding, strategic vision and financial and regulatory knowledge. It must also be led by a strong, independent chair who encourages discussion and challenge. The Board should also play an active role in defining and requesting MI rather than relying solely on executives to provide them with the information they deem necessary.
Making Good Use of INEDs
The group of INEDs, just as the Board as a whole, should possess the right mix of knowledge and understanding of the firm’s key business and risk areas. To understand and oversee the business, INEDs must be placed at key decision-making positions.
Board members need to be kept abreast with developments in technology, business strategy and regulation, investing and participating in education programmes.
Risk Management Frameworks
The first line of business is mainly occupied with generating revenue for the firm, but it is necessary to understand, evaluate and manage the risks it brings into the firm. The second line is manifested in the Risk or Compliance functions which must be independent of the business.
A positive culture encourages employees to speak up and challenge behaviour where they believe it might harm the firm or its clients. To achieve this, firms should make honesty and integrity an essential part of hiring decisions.
Corporate governance standards rarely provide practical advice on how to deal with the specific circumstances of the firm and the operating environment it finds itself in. Lessons from other countries and industries can be invaluable.
Read more in the full white paper by FTI Consulting (Asia) Limited HERE. ”