Regulating a Free Trade Zone - Improving the governance of companies

The purpose of this paper is to discuss the role of corporate governance and company reporting standards and practices as a potential source of competitive advantage for jurisdictions seeking to attract and retain corporate headquarters and act as a hub for international business services. In exploring this topic, we will draw upon example of reporting practices and standards from various jurisdictions.

Whilst financial reporting remains the bedrock of corporate reporting and analysis, investors and other stakeholders including governments and those affected by the activities and operations of companies are placing increasing value upon broader sets of information.

The experience of the UK suggests that broader company reporting and corporate governance contribute to building and maintaining trust between companies and stakeholders and the promotion of economic activity.

This paper also discusses how encouraging companies at headquarter-level to increase transparency with regard to sustainability related issues and taxation can have a positive benefit for stakeholders beyond the jurisdiction in which a company is headquartered.

The content of this paper is set out in a manner which we hope acts as a catalyst for collaboration, new thinking and a fresh, fit for purpose approach to corporate governance and reporting in the FTZ. The paper starts with an overview of corporate governance in the UK, followed by some of the key building blocks necessary for establishing a corporate reporting model that enables businesses to communicate clearly and concisely their business strategies and performance. It then discusses some of the latest thinking on this communication using integrated reporting – combining financial and non-financial performance, followed by other forms of reporting – sustainability and tax reporting, ultimately leading to better disclosure that will help build trust amongst a wide groups of stakeholders.

Key discussion points

  • Develop good corporate governance by allowing companies to create value using their own governance arrangements as long as they abide by the underlying principles. This will create trust and contribute to long-term success 
  • Encourage corporate reporting in order to communicate an integrated picture of the business, which is key to building trust, including reporting requirements that take into account the different sizes of business such that reporting is not onerous, but fit for purpose. The integrated picture of the business should take into account the market context in which a company operates, management’s strategic aims, the key drivers of value/impacts along with key performance indicators and key risks.

You can also download this report in Chinese.