Government’s review of corporate governance

By | November 29, 2016
Greg Clark MP

Measures to strengthen the UK’s corporate governance framework and shareholder influence over executive pay have been outlined today (29th November 2016) by Business and Energy Secretary Greg Clark. The paper sets out a range of options to address concerns around levels of executive pay, increasing representation of workers, customers, suppliers and investors in the boardroom, and whether our largest private companies should be subject to more rigorous corporate governance rules. It calls on businesses, investors, workers and members of the public to give their views on what should be done to ensure that the UK’s corporate governance framework helps to deliver an economy that works for all and maintain our reputation as the best place in Europe to do business.

New measures include:

  • strengthening the corporate governance framework for the UK’s largest privately-held companies
    which types of company need to strengthen stakeholder voices and how best the opinions of workers and customers can be better heard in the boardroom
  • increasing shareholder influence over directors’ remuneration, including increasing transparency and simplifying and strengthening long-term incentive plans

While businesses provide employment for millions of people and contribute £140 billion a year in taxes for public services, confidence and trust in business could be improved if more boards took wider employee and other interests into account, planned and invested for the long term and ensured that executive pay genuinely reflects business performance.

Business Secretary Greg Clark said: "The government is determined to make Britain one of the best places in the world to work, to invest and to do business, and part of that means continuing to have a framework of corporate governance that is admired across the world. This review will help us achieve that aim and the views of businesses, investors, employees, consumers and others with an interest in successful business are warmly welcomed.

Josh Hardie, CBI Deputy Director-General, said: "The UK’s approach to corporate governance is respected around the world. British firms know that great relationships with staff, customers and communities is the cornerstone of success. However, businesses agree that legitimate concerns exist and are determined that the unacceptable behaviour of the few should not tarnish the effectiveness of the many. So it is right that approaches to governance continue to evolve to support a modern, fair economy. We look forward to working with government to finding solutions that enhance the UK’s governance framework."

Simon Walker, Director General of the Institute of Directors, said: "We are very pleased the government is kicking off a wide debate on how to ensure UK corporate governance is up to scratch. The most important element of the proposals will be greater scrutiny for unlisted companies, which is long overdue.

There are around 2,500 private firms in the UK which employ at least 1,000 people, and the damage that can occur when they are poorly governed can be substantial. We welcome the government’s decision to throw its weight behind a code of practice for large unlisted business."

The consultation closes on 17th February 2017.