Six months ago, corporate governance suddenly shot to the top of the political agenda when Theresa May formally launched her Conservative Party leadership campaign.
Mrs May said that the scrutiny non-executive directors provide “is just not good enough”, adding “we’re going to change that system – and we’re going to have not just consumers represented on company boards, but employees as well”.
Mrs May further observed that executive pay had trebled over the previous 18 years and that “there is an irrational, unhealthy and growing gap between what leading companies pay their workers and what they pay their bosses”.
Fast forward to the end of 2016 and the publication of the government‘s green paper on corporate governance reform addressing three key areas: executive pay; strengthening the employee, customer and wider stakeholder voice; and, in response to the BHS failure, corporate governance in large privately-held businesses.
Almost 20 options have been set out ranging from incremental change, for example toughening up the current annual advisory vote on the remuneration report and strengthening reporting on stakeholder engagement, to potentially far-reaching reforms such as establishing senior ‘shareholder’ committees to deal with executive remuneration and appointing individual stakeholder representatives to boards.
This year marks 25 years since the original publication of the Cadbury Report and the UK’s first corporate governance code, which is well-regarded internationally. Despite that, a thorough look at the system as a whole is now essential and should not just include but go beyond the issues identified in the green paper.
A partial review would both be a missed opportunity and run the risk of being a sticking plaster solution with the potential for unintended consequences.
© City A.M.
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