The Government today published its Green Paper on Corporate Governance aimed at ensuring big businesses all play by the same rules and tackling failings in corporate behaviour at large private companies. It considers three specific areas of corporate governance where the Government thinks there could be scope to enhance the current framework namely executive pay; strengthening the employee, customer and supplier voice; and corporate governance in the UK's largest privately held businesses, with the aim of giving better protection to employees and customers.
It is very much a consultation paper with numerous proposals and variations on proposals. However, the key proposals include:
- Giving shareholders a binding annual vote on executive pay (rather than the current advisory vote) which could give shareholders the ability to block payment of bonuses and long term incentive awards to senior executives
- Encouraging shareholders (institutional and retail) to make use of existing and any new powers in relation to executive remuneration
- Encouraging Remuneration Committees to engage with shareholders and the workforce in advance of preparing pay policies
- Requiring companies to publish the ratio between the pay of their Chief Executive and their average employee
- Encouraging greater disclosure of bonus targets and performance measures
- Lengthening the period long term incentives / share options should be held to a minimum of five years rather than three
- Requiring executives to retain share awards until they have built up a shareholding of twice their gross total annual salary
- A number of options for increasing the voice of employees, customers and interested parties at boardroom level through stakeholder advisory panels, designating non-executive directors to be the voices of key interested groups, appointing stakeholder representatives to company boards and strengthening reporting requirements related to stakeholder engagement
- Requiring large private companies to abide by the FRC's Corporate Governance Code (currently only listed companies should abide by the Corporate Governance Code)
- The creation of a bespoke code of practice for large private companies (the Government seeks views on where any size threshold should be set)
The measures are now subject to public consultation which will close on 17 February 2017. Many of the proposals have been trailed already and some changes have been made. As we blogged last week "Is this the end of employees on boards" the Government has backed down on giving workers a compulsory place on company boards. However, the direction of travel is clear. In Theresa May's words "something has to change". If you would like to discuss these proposals and how they will affect your business please do not hesitate to contact me or one of the team.