The Government has launched a consultation on its corporate governance green paper, in a move broadly welcomed by businesses.
In the wake of the BHS and Sports Direct scandals, the Government has launched a crackdown on the worst excesses of businesses in an effort to improve corporate governance standards and restore public trust in businesses.
The Corporate governance reform green paper, which was published yesterday (Tuesday 29 November 2016), sets out potential measures to address concerns around executive pay and transparency; strengthening stakeholder voices, including that of employees, in the boardroom; and options for improving corporate governance frameworks for large, privately-owned organisations – current corporate governance frameworks apply only to publicly listed companies.
The potential measures outlined around executive pay aim to strengthen shareholder voting rights, encourage greater shareholder engagement with executive pay, strengthen the role of remuneration committees, and improve executive pay transparency. It also seeks to address the culture of ‘payment for failure’ by improving the effectiveness of long-term pay incentives.
The consultation seeks views on the options for reform outlined in the green paper. These include requiring organisations to report pay ratios between the chief executive officer and wider workforce. It also proposes better alignment of long-term incentive plans with long-term business interests through the use of restricted share awards instead of long-term incentive plans or by extending the holding period for share options to a minimum of five years for executives.
Greg Clark, business secretary, 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.
Oliver Parry, head of corporate governance at the Institute of Directors (IoD), said: “The government is right to bring a new focus to the corporate governance of unlisted companies, which at the moment is a bit of black box – we don’t know what’s going on in there until something goes wrong”.
The consultation will remain open until 17 February 2017 and will accept responses in either of the following three formats:
By e-mail to [email protected];
Via Citizens Space accessible here;
In hard copy to Corporate Governance Reform Team, Department for Business, Energy & Industrial Strategy, 3rd Floor Spur 1, 1 Victoria Street, London SW1H 0ET.
Although the reforms are aimed at larger businesses, small and medium sized enterprises (SMEs) should also consider responding to the consultation and having their say, particularly on how larger companies can more effectively engage with and recognise the specific needs of supply chain stakeholders.