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corporate governance reform – Green Paper published

5 December 2016

As 2016 draws to a close, 2017 looks like it will be a year where the good governance of companies will be a hot topic.  Following the Prime Minister’s speech at the CBI Annual Conference at the end of November, which focused on reforming corporate governance, BEIS has now published a Green Paper on corporate governance reform (see Green Paper for further details).

The Green Paper seeks views on a variety of potential changes to corporate governance structures in the UK, focussing primarily on:

  • Executive pay: This is seen as an area of public concern where:
    • there is a need to align executive pay to long term business performance
    • it would desirable to increase shareholders’ voting rights in relation to executive remuneration, as well as to encourage shareholder engagement on the topic of executive pay
    • the government is considering a review of the role of the remuneration committee and considering the publication of ratios comparing CEO pay to pay in the wider workforce together with disclosure of bonus targets
  • Strengthening the employee, customer and supplier voice: By allowing the voice of stakeholders such as employees and consumers to be heard on the board – various options are discussed and are not mutually exclusive. A combination of methods may be used to achieve the best outcome
  • Raising the bar for governance standards in larger private companies: By the possible extension of certain listed company governance requirements (such as the UK Corporate Governance Code) to them, or, alternatively by devising a separate code tailored especially for them (in conjunction with the FRC or IoD for example).

Since becoming Prime Minister, Theresa May has made a series of speeches highlighting the “importance of building an economy that works for everyone, not just the privileged few” and of restoring the confidence of the public in the business community following the damaging behaviour of a small minority of large corporates. 

However, the proposals set out in the Green Paper are perhaps not as radical as was originally suggested – earlier in the year the Prime Minister had indicated that there could be mandatory rules for employee and consumer representatives to have seats on large private company boards. It is now clear from the Green Paper that the 'voice' of these stakeholders can be achieved in other ways - and that whilst companies should have the right to appoint stakeholder representatives to the board on a voluntary basis, the government will not be proposing to mandate the direct appointment of employees or other interested parties to company boards.

The Green Paper contains a wide range of proposals on which the government is seeking views. It is also clear that the government is interested to hear suggestions on any other ideas or proposals that could be explored which may strengthen the UK’s corporate governance framework. The proposals are open for consultation until 17 February 2017 and we will issue a further update once the outcome of the consultation is known.

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Emma Grant

Emma Grant

Professional Development Lawyer

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