Are Corporate Governance Code Disclosure and Engagement Principles Effective Vehicles for Corporate Accountability? The United Kingdom as a Case Study

Abstract

Disclosure and engagement principles are included in every corporate governance code, reflecting a critical emphasis on communication as a vehicle for corporate accountability. These communication principles have been a focus of reform worldwide, prompted by shifts in financial market and social expectations of corporations. The article examines the disclosure and engagement provisions in the Corporate Governance Code in the United Kingdom (and the proposed reforms to these provisions) as a case study. The proposed initiatives seek to strengthen the voice of employees and enhance disclosure around environmental and social concerns. However, this article contends that the gains achieved from these reforms may be marginal due to structural deficiencies. The incremental disclosure and engagement obligations are expected to be flexible and loosely phrased, with a negligible probability of significant market consequences or regulatory intervention. Moreover, most substantive corporate communication will continue to occur at private forums between directors and selected institutional investors. In financial markets with these regulatory settings, effective governance mechanisms to ensure broad and independent accountability of corporations are lacking or weak. Indeed, these legal structures encourage and legitimise carefully differentiated private and public communication channels, with the public discourse used to present a sparkling company image. Policy makers need to re-consider their reliance on private forums to improve governance standards and ensure that public communication frameworks are inclusive, responsive, probative and enforced. In this way, company law will start to meet the growing calls for corporates to act as responsible citizens.