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UK government to consult on PMs corporate governance pledges

Prime Minister Theresa May, speaking at the end of her first G20 summit held in Hangzhou, China, pledged to bring forward a consultation paper this autumn suggesting reforms to corporate governance at UK companies.

This indicates that May will be taking action on issues she first raised at the start of her campaign to stand as  Conservative Party leader and which she believes fit with her pledge as Prime Minister to govern in a way that benefits everyone and gives them a share of economic improvements and increased prosperity.

At the press conference May said, “We must do more to ensure that working people really benefit from the opportunities created by free trade. This discussion goes to the heart of how we build an economy that works for everyone.”

She added, “And to restore greater fairness, we will bring forward a consultation this autumn on measures to tackle corporate irresponsibility – cracking down on excessive corporate pay and poor corporate governance, and giving employees and customers representation on company boards.”

May added that at the G20 summit the participating governments had decided to do more to stop aggressive tax avoidance and to fight corruption.

Earlier this month, ICSA: The Governance Institute, questioned whether May’s original suggestion that a binding vote on pay be given to shareholders would actually curb executive remuneration excesses. The professional body, that represents company secretaries, has written to the Prime Minister Theresa May to advise caution in adopting such an approach.

“Whilst it is clear that the current system for setting and approving remuneration is not working, it is less certain that giving further voting rights to shareholders is the right answer,” said Simon Osborne, Chief Executive of ICSA. “Since 2002 the UK has been pursuing a regulatory approach based on a combination of transparency and voting rights. Despite both elements of the approach having being strengthened since then, it has done little or nothing to prevent an escalation of directors’ fees and bonuses.

“The issue is not that shareholders lack the rights that would enable them to hold companies properly to account, but that they are often reluctant to use them. Looking at the five largest shareholder revolts this AGM season, it is striking that the average vote against the report was 54 per cent but the average vote against the chair of the remuneration committee was less than 1.5 per cent. Unless investors become more willing to use the powers they already have, it may be necessary to consider different – and possibly more radical – reforms.”

Meanwhile Conservative MP, Chris Philp an entrepreneur before he entered parliament last year, added a contribution to the debate arguing that companies have become “ownerless corporations” as they increasingly have a very fragmented shareholder base which means shareholders are not exercising proper oversight of companies they own.

In a paper, produced in association with the High Pay Centre, Philp calls for the introduction of a Swedish-style “shareholder committee” of the five biggest shareholders in a company, which would provide more effective governance in particular with regard to executive pay and tackle the problem of ownerless corporations.  He supports the prime minister’s call for binding annual votes on executive pay, and the introduction of the mandatory publication of pay ratios. He recognises the advantage in including the employees’ point of view in discussions over pay at the top.

What do you think?