Investor perspectives from the International Corporate Governance Network’s Regional Conference in Frankfurt.
Over the past few blogs, I’ve shared insights gathered from our discussions with investors at a roundtable and panel discussions at the ICGN Frankfurt Conference. I’ve highlighted two issues raised by investors in particular: the desire for information on culture and the need to improve and expand governance reporting.
Investors are asking for a better understanding of audit quality and they are looking beyond the current corporate reporting model. They want more robust reporting around the entire risk and compliance system and the cultural elements of companies. These types of objectives are not ones that are really being addressed in the existing scope of audit or the reporting changes being pilot-tested in the UK and the Netherlands.
Is expanding the auditor mandate to include such activities realistic?
From a technical aspect, the option is feasible. As one of our audit representatives noted, most of the large audit firms already have the skill sets needed to provide opinions around governance in particular: strategy creation, governance, risk and risk appetite, and the effectiveness of audit committees.
But for audit firms to do this type of work as part of the reporting process, they would need to be given an expanded mandate. Not all investors believed this was a good idea. Several investors raised the question of whether expanding the scope of audit would muddy the waters or take away from audit’s key focus. Would an expanded auditor mandate provide more credibility to the entire reporting process?
Speakers in this video: Amra Balic (Managing Director, Head of EMEA Corporate Governance and Responsible Investment at BlackRock), Anne Molyneux (Director at CS International), David Couldridge (ESG Analyst at Investec Asset Management) and Angeli van Buren (Advisor to the Chief Investment Management, PGGM Investments).
At the very least, making changes to corporate reporting to better address governance and culture would be a significant benefit for investors. The exact role of auditors in this process, and the degree to which changes can and should be made, will require far more discussion.
Regardless of any potential future changes, however, one thing is clear: In order to expand the scope of auditors to include these types of issues, investors will need to be far more vocal about their desires and the benefits associated with them.
Any decision on expanding the scope of auditors will require careful consideration, and more collaboration between auditors, investors and other stakeholders. Over the next few months, we will continue to gather the perspectives of investors on this very important topic. Our next engagement opportunity will be at the ICGN’s San Francisco Annual Conference in June.