The Financial Reporting Council (FRC) currently operates the Corporate Governance Code for listed companies, which is focused on board governance, and was developed over the last two decades.

The institute wants to see the development of an overarching framework for business conduct that involves all groups with a stake in companies and sets out broad principles for the purpose of companies. This could then be supplemented with more detailed codes for particular groups, in a similar way to the relationship between the UK Corporate Governance Code and the Stewardship Code.

The proposal forms the final part of ICAEW thought leadership series looking at corporate governance.

It comes as public concern is mounting over the use of offshore tax arrangements by multinationals and the apparent failure of some boards at high profile companies to deal with criticisms over excessive pay and aggressive pricing policies. 

Michael Izza, ICAEW chief executive, said: ‘The way we do business and the public’s expectations of business behaviour have changed.

‘The current system of corporate governance is unable to deliver what’s required, for example in relation to issues such as diversity, tax avoidance and pay.

‘We need to take a good look at the way we encourage certain business behaviour. This has become ever more evident in the wake of the global financial crisis, and with the increased public and capital market concern about how companies are run.’

ICAEW’s paper says the current corporate governance focus on boards is too narrow and prescriptive to deal effectively with business behaviour as the number and types of groups and intermediaries affecting the way companies behave continues to grow. 

It also warns that there is a risk of creating an increasingly complex and inconsistent system of codes, rules and regulations.

 Izza said: ‘A framework could help promote consistency between group specific codes, encouraging a shared sense of accountability and would also allow us to maintain key benefits of a code-based regime, such as innovation and long-term learning.

‘Codes are typically more effective than prescriptive rules in dealing with human behaviour so this approach has the potential to change business behaviour without creating new legislation.’ 

ICAEW’s pape,r Who should be covered by codes?, is here: http://www.icaew.com/en/technical/corporate-governance/dialogue-in-corporate-governance/who-should-be-covered-by-codes?utm_source=Press%20Release&utm_medium=link&utm_campaign=Paper%205