Helping Chartered Secretaries and Chartered Governance Professionals keep up with frontier issues in governance is part of the remit of The Chartered Governance Institute (CGI). This article reviews two new papers from CGI’s Thought Leadership Committee that raise important questions for the profession going forward.

CGI’s Thought Leadership Committee (TLC) was established in 2016 to help governance professionals stay up to date with technical best practice and the wider debates relevant to the profession. Two new papers from the TLC, now available from the International Insights section of the CGI website:, are essential reading for anyone involved in governance.

1. Governance beyond the listed company

In January 2020, the TLC published ‘Corporate Governance – Beyond the Listed Company’. This discussion paper, authored by the current TLC Chairman Peter Greenwood FCIS FCS, looks at the governance implications of the declining popularity of the listed public company as a structure for business entitites and the corresponding growth in alternative fundraising structures, such as private equity, venture capital and crowdfunding.

The growth in alternative fundraising structures has been worldwide in scope and on a spectacular scale. The paper indicates a sevenfold rise in private equity net asset value since 2002, and a threefold rise in the size of the venture capital industry between 2008 and 2017. The decline in the number of public companies has been similarly large scale – in the US their number has halved since 1997– but so far this trend has not been seen in Asia. In Hong Kong and the Mainland the number of listed companies is still growing. However, these related trends raise questions about the orientation and future of governance that are relevant to practitioners globally.

Rebalancing governance

Since the publication of the Cadbury Report in the UK in 1992, the governance regimes applicable to listed companies worldwide have been growing in scale and sophistication. Has this had the unintended consequence of turning increasing numbers of organisations away from the traditional public company model?

In a webinar held on 16 April 2020, Mr Greenwood pointed out that the many potential drivers of this trend, including unusually low interest rates, changes to tax regimes and overall trading conditions, make it difficult to identify any one single factor as its cause. Nevertheless, the requirements imposed on listed companies via legislation and corporate governance codes risk putting them at a competitive disadvantage in comparison with non-listed companies. In addition to the need to level the playing field between private and listed companies, there is also the question of whether corporate governance is increasingly looking in the wrong direction.

Reorienting governance

Over the last three decades, corporate governance has been focused on the governance of listed companies. This was largely based on the notion that high governance standards should be a prerequisite for access to public capital. In the context of the shift away from the ‘shareholder primacy’ approach to governance, however, this narrow focus on listed company governance is looking increasingly myopic.

Businesses, listed and non-listed, have to take into account the interests of wider stakeholder groups and the communities they operate in. Non-public companies provide goods and services of similar importance and value to societies, and have responsibilities to stakeholders of equal importance to those of listed companies, so would it not be logical for them to be under similar corporate governance expectations as their listed counterparts? Good governance has always been seen as a prerequisite for access to public capital – should it also be seen as a prerequisite for limited liability?

Just looking at the issue of transparency alone, the decline in the number of listed companies has already resulted in a worrying decline in the public disclosure of business information. The paper cites the deal in 2019 that resulted in Axel Springer being taken private by the US private equity giant KKR. At a stroke, this meant that some of Germany’s biggest newspapers, as well as a major German publisher, were no longer subject to the higher standards of transparency and accountability which come with listed status.

Similarly, Sotheby’s, the leading auctioneer that had been a listed company for 30 years, was taken into private ownership in June 2019. At the time, Hong Kong’s South China Morning Post quoted one leading art dealer as saying: ‘The deal to take Sotheby’s private will throw a handy cloak of secrecy over sales earnings’.

The journey ahead

The decline in stock exchange listings may not yet be a trend we are seeing here in Hong Kong, but it raises important questions for governance going forward. At the top of the agenda is the need to rebalance the respective governance requirements applied to listed and non-listed companies. The paper points to developments in the UK that may indicate a way forward. The Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations) implemented in 2018, for example, require all companies of a significant size to make disclosures regarding their corporate governance arrangements.

The Regulations apply to companies with more than 2,000 employees, and/or a turnover of more than £200 million and a balance sheet of more than £2 billion. Under the Regulations, such companies must disclose which corporate governance code, if any, they applied during the financial year, how they applied the code and any deviations from the code. If companies did not apply any corporate governance code, they need to explain their reasons for that decision and disclose their corporate governance arrangements.

The Regulations were followed, in December 2018, by ‘The Wates Corporate Governance Principles for Large Private Companies’. The paper suggests that these principles, available on the UK Financial Reporting Council website:, may be capable of application to other jurisdictions eager to extend governance disclosure requirements to large private companies.

The Code of Best Practice issued by Sir Adrian Cadbury in the UK back in 1992 targeted the boards of listed companies, but Sir Adrian encouraged as many other companies as possible to aim to meet its requirements. Three decades later, however, that convergence of best practice in governance has not occurred. ‘If anything,’ the TLC paper points out, ‘public and private companies have followed diverging paths. The evolution of business models, the links between capital providers and business, the scale of economic activity in the hands of non-public companies and the substantial benefits of limited liability all suggest that the time has come for a more vigorous implementation of Sir Adrian’s initial hopes’.

2. Integrated reporting – a governance perspective

Since 2002, when Danish biotechnology company Novozymes produced the world’s first integrated report, the integrated reporting (IR) movement has had a major impact on corporate reporting globally. The International Integrated Reporting Council (IIRC) was formed in London in 2009 and released its Framework, explaining the fundamental concepts that underpin IR and setting out guiding principles that govern the overall content of an integrated report, at the end of 2013. The first revision of the Framework is now underway.

A core concept of the IR movement is that of the six capitals (see ‘The six capitals’). Moving away from the focus on historical financial data in corporate reporting, the IR process requires organisations to report on the many different resources and relationships, financial and other, used in the value creation process.

The IIRC does not certify ‘integrated reports’ and its Framework does not prescribe key performance indicators, measurement methods or specific disclosures that must be made. The IIRC calculates, however, that in 2019 around 2,000 listed companies in over 70 countries were using the IR approach for their reporting. In many ways, ‘integrated thinking’ – the active consideration by an organisation of the relationships between its various operating and functional units and the capitals it uses and affects – has been more influential on the corporate reporting process than the number of reports that can be deemed ‘integrated reports’ under the Framework would indicate.

The relevance of IR for governance professionals

In March 2020, the TLC published ‘An overview of integrated reporting for Chartered Secretaries and Chartered Governance Professionals’. The paper, a collaboration between CGI and the IIRC, is designed to promote a better understanding of the benefits of IR and the roles that governance professionals can play in transitioning to IR.

The paper highlights how IR fits into the governance framework of organisations. Integrated reporting and governance share common goals – including improved transparency, an ethical culture, effective leadership, effective internal controls and board oversight, and ultimately a sustainable value creation process.

‘Good governance is the foundation of the value creation process. It informs the application of integrated thinking around how the organisation contributes to creating positive outcomes for stakeholders and society. This forms an invaluable part of assessing the prospects and longer-term viability of the organisation for investors and other stakeholders,’ the paper states.

The latest iteration of South Africa’s corporate governance code – King IV – recognises IR as a key principle of corporate governance.

Transitioning to IR

The TLC paper also provides practical insights into how governance professionals can facilitate implementation of IR. It makes it clear that transitioning to IR is an incremental process that will take time, and recommends that organisations should set multi-year plans to move to IR and should set up a cross-functional project team to drive the process.

‘Integrated thinking is not something that is done just at year end. For an integrated reporting approach to be holistic and effective, integrated thinking needs to be entrenched within the organisation. This cannot be achieved overnight and will require a fundamental mind shift, led by the board, and starting with the strategy team and then all those who contribute to implementing the strategy,’ the paper states.

As the board has the ultimate responsibility for governing an organisation, a commitment to IR from the board is vital. Nevertheless, the paper emphasises that everyone has a role to play. As you might expect from a paper designed to promote IR among Chartered Secretaries and Chartered Governance Professionals (CS/CGPs), the paper highlights the unique position of CS/CGPs to facilitate the transition to IR. They are a key link between the board and management, between the company and external stakeholders, and between the various different functions within organisations. Moreover, they are already closely involved in the corporate reporting process.

‘The governance professional/company secretary can play a significant role in embedding an integrated thinking culture to help break down the silos between teams and departments by providing dashboards and other communication tools for improved alignment across the organisation, leading to efficiencies in both external and internal reporting. This includes being part of the multidisciplinary project team within the organisation, which guides the organisation around the right data and information required,’ the paper states.

The papers reviewed in this article, together with the latest paper from The Chartered Governance Institute’s Thought Leadership Committee, ‘Enhancing Individual Director Accountability’, published as this edition went to print, are available from: