The Association of Chartered Certified Accountants (ACCA) has released a consultation paper on corporate governance that seeks to explore the nature of existing corporate governance and risk management frameworks, and whether they are 'fit for purpose'. The paper recommends that the sustainable value creation should be the overarching purpose of governance, and that companies and investors should develop and report using more suitable measures of performance and value creation.
The paper, "Creating Value Through Governance – Towards a New Accountability," asserts that sound corporate governance can contribute to creating value for society. It explores the history of corporate governance practices, including academic research around governance and whether it prevents corporate failure, the impact of the global financial crisis, and a lack of consensus about what comprises good corporate governance and what can be expected from good governance. It argues that regulation of governance and risk management has not helped to create a healthy corporate culture or effective boards, and that existing governance systems can be considered to have made it harder to hold people to account for company failures.
The consultation paper suggests that governance should be about supporting and enabling business to create value sustainably, "taking and managing risk and responding flexibly to uncertainty without suffocating entrepreneurial flair". In order to do this, a new accountability framework for governance is proffered that is based on three components, being 'performing', 'informing', and 'holding to account', and how these three components relate to three different 'interfaces', being between executive management and boards, boards and institutional shareholders, and institutional shareholders and 'savers' (providers of capital).
"Financial statements do not convey whether a company is in a better position to create future value at one balance sheet date than at an earlier date. ‘Profit’ is an inadequate, easily gamed, measure and investors lack suitable alternative metrics for determining the true value of companies," notes the report.
The paper also argues that company financial reports should convey whether a company has created value over the reporting period and whether its ability to create value in future has improved". In this regard, it sees the International <IR> Framework issued by the International Integrated Reporting Council (IIRC) as containing key points on value creation, performance and reporting and notes that "if it leads to a more informed approach to value and how to measure its creation and its costs, companies should become better at creating value for shareholders and society."