The shipping industry must adopt a transparent, proactive approach to corporate governance or else risk exposure to business and reputational damage.
Corporate governance in shipping has been in sharp focus recently, particularly following publication of the research by Wells Fargo Securities into Shipping’s Corporate Governance War. Businesses in today’s shipping industry are expected to fully comprehend the implications of inadequate management of conflict of interest arrangements, and to recognise the importance of independent directorship.
The UK Corporate Governance Code, for example, stipulates that at least half the board of directors, excluding the chairman, should comprise non-executive, independent directors. The proportions should be sufficient to mount adequate challenge where appropriate, and should appear in the governance disclosures in the company’s annual report.
Independent directorship, good practice and transparent management can improve the confidence of investors and other stakeholders. The ‘tone at the top’ is key. The board should make public when reporting any relationships or circumstances likely to affect the judgement of an independent director. Independent director recruitment ought to be transparent and skills-based. The reason for recruitment should be justifiable and the process auditable.
Potential conflicts of interest should be investigated as part of recruitment due diligence, and the continued effectiveness of decisions to appoint should be tested annually through board evaluation and individual director appraisal. Conflict of interest may be about nothing more than third-party perception, so an annually updated register of interests should be open to external scrutiny by stakeholders.
Independent directorships and good practice can facilitate the disclosure of actual and perceived conflicts in reports issued to stakeholders, and ensure that calls for declarations of interest are a standard board meeting agenda item.
Good practice dictates that a nominated individual should be responsible for regularly scrutinising the register, and an escalation process put in place for managing concerns. This should be disclosed in the risk register and publicly reported. As part of wider risk management, a periodic independent review should be undertaken of the register of interests.
These steps are an excellent way to inspire stakeholder and investor confidence in board transparency. Any shipping businesses which do not follow them should reflect that it is far better to disclose than to be exposed to potential reputational and share value damage.