Purposeful Company Task Force: Corporate governance reform could boost UK economy

The UK’s Purposeful Company Task force, set up by the Big Innovation Centre, has called for major changes in corporate governance, asset management and backed the Financial Reporting Council’s proposal for company’s to report on how directors are having regard to stakeholders as required under company law.

The task force said its work builds on evidence that companies driven by a vision of their role in the world outperform those that do not, and advocates for Britain to make it much easier for them to flourish than at present. In its final report the task force has published 22 policy proposals which it believes support the government’s aims of boosting UK performance and making the economy work for everyone as outlined in its proposed industrial strategy and corporate governance green paper.

Will Hutton, chair of the Big Innovation Centre Steering Group and co-chair of the Purposeful Company Task Force, said: “The evidence is clear, companies with a declared purpose, adhered to by their leaders and understood by their employees, perform far better over time than their less purposeful peers. The practical reality is that our economy is missing a huge opportunity the longer that this issue isn’t addressed. Britain must create innovative, purposed capitalism populated by purposeful companies. Now is the moment to begin the journey.

Among the proposals are that companies should state precisely their purpose – their role in the world from which profit results – in their articles of association and regularly report on the delivery of that purpose. The task force also believes that alternative models of corporate form should be formalised by government so that companies could choose the one which best reflected their purpose, strategy and business model.

Company reporting, the task force recommended, should be overhauled to go beyond financial assets and more effectively communicate companies’ strategic intent and value to shareholders. The task force also backs simplification of executive pay and the need for alignment with long-term success. Additionally it is proposed that all companies should produce a Fair Pay Report, outlining their approach to pay fairness throughout the organisation.

The Task Force also suggests that the asset management industry should be repurposed. Asset managers should state and have certified their purpose, in particular how they promote the long-term interest of the companies they invest in and the savers they invest for. They should also publish information on their stewardship activities. The task force also suggests that regulatory obstructions to the creation of and engagement by large independent shareholders – blockholders – should be removed. Investment in purposeful companies should also be particularly encouraged, the task force believes and suggests that a default pension fund allocation could be set to apportion a given percentage towards purposeful companies, creating a pool of up to £100 billion for such investment.

The report was backed by Iain Wright MP, chair of the Business, Energy and Industrial Strategy Select Committee, which is conducting its own corporate governance inquiry. He said: “The Business, Energy and Industrial Strategy Committee is leading an inquiry into the area of corporate governance, focussing on how modern companies can better serve their shareholders, employees and our wider society. The Big Innovation Centre report on the Purposeful Company is a hugely valuable intervention in this debate, and, as we on the committee consider our recommendations to government this is a timely, welcome and very powerful contribution.

The task force now intends to lead on making the changes it is proposing happen and the Big Innovation Centre said the group will meet in April to begin the next phase of its work.

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