2/8/2021 Imposing liability on executives is madness

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Imposing liability on executives is madness

Instead of seeking to grow their companies, or set up new ones, businessmen would live in
fear of an error ruining their careers.

TELEGRAPH VIEW
6 February 2021 • 6:00am

128

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2/8/2021 Imposing liability on executives is madness

ith a bit of luck, Britain could be poised for a vaccine-fuelled economic boomlet

W
later this year. With a Brexit deal signed and a new Business Secretary committed to
a “thriving private sector”, it is no wonder that the Bank of England is increasingly optimistic
about a dramatic bounce-back when Britain finally reopens. 

Yet instead of encouraging entrepreneurship and risk-taking, Kwasi Kwarteng is suggesting

a reform which would freeze corporate Britain in its tracks. He proposes making company
directors personally liable for the accuracy of their financial statements, a move guaranteed
to turn executives into risk-averse bureaucrats. Instead of seeking to grow their companies,
or set up new ones, businessmen would live in fear of an error ruining their careers.

It is, of course, rightly already against the law to publish deliberately misleading accounts. It
is also true that there have been too many corporate scandals, fuelling a toxic distrust of
capitalism. But the answer is to enforce existing rules better, and to shake up the audit
market, long dominated by overly comfortable accountancy giants. The tiny minority of
dishonest directors should face the full force of the law, and auditing should become the
preserve of stand-alone businesses, with no conflicts of interest, rather than integrated
advisory firms.

Much of British business, especially in the larger echelons of the listed world, is already tied
down in red tape, jargon and a safety-first culture. Corporate governance rules have made
most company statements overly lengthy and largely incomprehensible, including to
insiders. If directors are held personally responsible for the accuracy of every financial
number produced by their employees, they will focus more on avoiding litigation than on
running their companies.  The unintended consequences of imposing strict liability on
directors would be legion.

The demand for lawyers and internal auditors would boom, and genuine investment would
fall. CEO pay could be forced up as executives demand “danger money”. The talent pool
would narrow even further, and talent will flee overseas. The UK would never rival Silicon
Valley: the economy would instead remain stuck in eurozone-style permanent stagnation,
defeating one of the objects of Brexit. This is Mr Kwarteng’s first stumble. He must reverse
course before he inadvertently nips Britain’s nascent economic recovery in the bud.

Related Topics
Kwasi Kwarteng, Coronavirus, Auditors

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