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Employment lawDisciplineLatest NewsEconomics, government & businessDiscipline and grievances

It’s time to properly vet the boardroom – not just employees

by Susie Thomson 25 Jan 2024
by Susie Thomson 25 Jan 2024 Photo: Shutterstock
Photo: Shutterstock

The Economic Crime and Corporate Transparency Act 2023 and the NHS fit and proper person test are both overdue though welcome measures to prevent poor quality or criminal executives gaining top roles. For too long we’ve maintained a ‘hands-off’ and deferential attitude towards the boardroom argues Matrix Security Watchdog’s Susie Thomson

There are reasons for feeling that 2024 could be an encouraging year for corporate governance and safety in the UK, with stringent checks on company directors at last arriving on the agenda with the rollout of the Economic Crime and Corporate Transparency Act 2023 (ECCTA).

Scrutiny of leaders has been overlooked until now, in stark contrast to the increasingly thorough screening process applied to recruiting the core workforce outside of the C-suite”

According to the government, the Act will “allow UK authorities to proactively target organised criminals and others seeking to abuse the UK’s open economy”.

Business minister Kevin Hollinrake said: “These reforms will remove the smoke and mirrors around companies hiding behind false identities, provide further protection to the public from companies fraudulently using their addresses, and deliver better data to support business and lending decisions across the economy.”

More importantly, perhaps is that under the Act, says the government, “groundbreaking legal reforms will allow the courts to dismiss spurious lawsuits which seek to stifle freedom of speech. Prosecutors will be better able to hold large corporations accountable for malpractice.”

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Ministers claim the powers given to Companies House represent the biggest shakeup to the service in its 180-year history and say that, once the Act comes into force, the agency will take immediate steps to improve the quality of information on the company register.

Coming hot on the heels of the autumn launch of the National Health Service’s (NHS’s) fit and proper person test framework for vetting top-level executive and non-executive directors, the Act’s arrival highlights a growing recognition of the vital need to rigorously verify the credentials of the leaders of UK organisations.

This has been overlooked until now, in stark contrast to the increasingly thorough screening process applied to recruiting the core workforce outside of the C-suite.

Avoidable errors

The ongoing failure to carry out thorough checks on the credentials of senior executives has led to a raft of high-profile corporate scandals and company collapses making the headlines. BP’s Bernard Looney provides a recent example. A long-term BP employee, Looney was promoted from within, yet no one picked up on his past personal relationships with colleagues, which he admitted to failing to fully disclose last year, resulting in his dismissal for “serious misconduct”. This has proven to be a major embarrassment for the energy giant.

Meanwhile, former Barclays chief executive Jes Staley was last year banned from holding any senior City role after the Financial Conduct Authority ruled he had misled it over the nature of his relationship with financier and sex offender Jeffrey Epstein. Any kind of relationship with a man who admitted to soliciting sex from girls as young as 14 back in 2008 should have sounded deafening alerts, and questions asked at an early stage.

There seems to be a reluctance to scrutinise C-suite executives sufficiently, perhaps caused by the awe and fear that seniority can inspire”

The current scrutiny of the Post Office’s handling of the Horizon computer scandal – a scandal 25 years in the making – also brings forth questions over leadership credentials. It is striking how some of those involved with maintaining the “cover up” moved on to other senior executive positions, even after the extent of the scandal was known. The new Act may not directly prevent poor behaviour such as in these cases but could pave the way for better scrutiny of appointments.

Hope for the future

The new legislation, which will start to come into force early this year, should hopefully set the tone for greater vigilance and reduce the numbers of CEO failures. For the first time identify verification will be required by Companies House for directors of “large organisations” registered in the UK, as well as other people who play a major controlling role.

Failure to ensure such identity verification, along with the registration of an appropriate address, will now be offences. As a further deterrent, Companies House will be able to share information with other agencies, including the National Crime Agency or the Serious Fraud Office. Large organisations are defined as those that meet at least two of the following criteria:

  • A turnover of more than £36 million
  • A balance sheet total of more than £18 million
  • More than 250 employees.

The ECCTA essentially broadens Companies House’s powers so that it can be a more active gatekeeper over company creation. It will become a custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register.

The Act also improves the financial information on the Companies House register, making it more reliable and accurate, with the body having more effective investigation and enforcement powers, backed by better cross-checking of data with other public and private sector bodies.

Just the start

This milestone in strengthening board governance and corporate leadership and stability should be welcomed with open arms. But it’s important that it should also be viewed as simply the start. Despite the catastrophic effects on organisations that can result from a lack of thorough vetting of senior leadership appointments, many industries fail to carry out such checks.

Currently there seems to be a reluctance to scrutinise C-suite executives sufficiently, perhaps caused by the awe and fear that seniority can inspire.

Hopefully, the example set recently by the NHS and now the introduction of rules relating to the ECCTA will drive businesses across all sectors to ramp up the checks in their board-level recruitment processes. This will help to ensure those making critical decisions not only have the right qualifications, but also that there are no skeletons in the corporate closet that could have disastrous repercussions across a business.

Senior appointments should be subjected to the same, if not more, rigorous checks than everyone else”

It must be recognised that it’s arguably even more important to screen top level executives than other employees, because poor leadership can have a greater impact both from a business and reputational perspective. That’s why senior appointments should be subjected to the same, if not more rigorous checks than everyone else. This means ensuring the latest and best possible screening methods are being carried out, such as social media analysis. Specified in the new NHS framework, this is becoming an indispensable tool for verifying a person’s character. Something that’s unlikely to change with global social media use continuing to grow, recently hitting 4.95 billion people.

Staying ahead in terms of screening processes will be particularly important for Companies House and a major challenge. The body will need to harness the necessary expertise and techniques to check the validity of the information supplied by new companies. This will be vital to ensure it carries out its new and critical remit effectively, and that companies are led by those fit and proper to do so. Something that will drive business success, protect employees and support the UK economy.

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Susie Thomson

Susie Thomson is co-founder of employment screening service Matrix Security Watchdog. She played a leading role in updating the British Standard in security screening to become a ‘fit for purpose’ Code of Practice.

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