A key part of the government’s long-awaited proposals on corporate governance has been criticised as “watered down” and “a box-ticking exercise”.
As part of her leadership campaign, Theresa May pledged to have both consumers and workers represented in the boardroom and she announced a green paper on corporate governance shortly after becoming prime minister.
Today, the Department for Business, Energy and Industrial Strategy (BEIS) revealed it would be introducing a slew of measures in the coming months to strengthen corporate governance. These include legislation requiring listed companies to publish and justify pay ratios between their chief executives and their staff; a name-and-shame public register of companies that faced significant shareholder opposition to executive pay packages; and proposals to make sure employee voice is taken into account in the boardroom.
“One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business,” said business secretary Greg Clark. “Our legal system, our framework of company law and our standards of corporate governance have long been admired around the world. We have maintained such a reputation by keeping our corporate governance framework under review. Today’s reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”
However, Frances O'Grady, general secretary of the TUC, branded the announcement “a feeble proposal, spelling ‘business as usual’ for board rooms across Britain”.
“The prime minister’s pledge to put workers on company boards has been watered down beyond all recognition,” O’Grady added. “This now amounts to little more than a box-ticking exercise.”
Meanwhile, Mathew Lawrence, senior research fellow at the Institute for Public Policy Research (IPPR), said: “It is good that the government has finally woken up to the need to reform the way British companies are run. But tinkering at the edges is not enough. If we want to build – as the prime minister says – a fairer and more productive economy, we need to reform the basic model in which companies are accountable entirely to their shareholders.”
May had already shown signs of backtracking on her pledge to put workers on boards when she spoke at the Confederation of British Industry (CBI) conference last November, stating the upcoming reforms were “not about mandating works councils, or the direct appointment of workers or trade union representatives on boards”.
Clark will shortly approach the Financial Reporting Council (FRC), which is responsible for setting the UK Corporate Governance Code, about introducing a new requirement into the code to make sure employees’ interests are represented at board level. Under this, companies will need to assign a non-executive director to represent employees, create an employee advisory council, or nominate a director from their workforce.
The FRC plans to consult on these changes to the code later this year and publish its revisions in mid-2018.
“There is no magic bullet to creating meaningful employee voice but the options put forward by government are broadly positive and should encourage greater awareness and discussion of workforce matters at board level,” said Ben Willmott, head of public policy for the CIPD.
A report published earlier this month by the High Pay Centre and the CIPD discovered the average pay ratio between FTSE 100 chief executives and their workers was 129:1 in the 2016 financial year, meaning workers would have to toil away for 129 years to earn the same as their boss does in 12 months.
Shareholders have recently revolted over executive pay at a number of household names. In May, six out of ten investors shot down the £1.5m pay packet publisher Pearson proposed paying chief executive John Fallon after a loss-making year, while two-fifths of shareholders at pharmaceutical group AstraZeneca gave the thumbs down to chief executive Pascal Soriot’s £13m pay in April.