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Theresa May warned against 'heavy-handed' approach to corporate governance

Published 29/11/2016

Theresa May announced the crackdown
Theresa May announced the crackdown

Business has responded with concern to Government proposals which could require them to make public the ratio between the pay of chief executives and ordinary workers.

And unions have voiced anger over the failure of a new package of corporate governance reforms to provide seats for workers on company boards.

Prime Minister Theresa May said that measures set out in a consultative Green Paper were designed to restore the reputation of British business, which has been damaged by "the behaviour of a limited few" in recent years.

Among the options for change set out by Business Secretary Greg Clark in the House of Commons were:

:: Transparency on top pay, with companies required to publish the scale of disparity between chief executive pay and that of average staff members;

:: Binding votes on executive pay by shareholders;

:: The establishment of advisory panels or the appointment of designated non-executive directors to speak for workers and consumers on boards;

:: The extension of governance rules covering publicly-listed companies to include the largest privately-owned firms.

Mrs May said her Government was "unequivocally and unashamedly pro-business", but added: "For people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public.

"Where this social contract breaks down and individual businesses decide to play by their own rules, faith in the business community as a whole diminishes - to the detriment of all. It is clear that in recent years, the behaviour of a limited few has damaged the reputation of the many. It is clear that something has to change."

Mr Clark said that the UK continued to have some of the toughest corporate governance rules in the world, and said concerns related to "a very small number of businesses which have undermined the reputation of British business generally".

Labour's shadow business secretary Clive Lewis said that, after a series of corporate scandals this year, the proposed reforms may come to be known as "the BHS law"

But he warned: "Had the proposals ... been in place six months ago, I'm not wholly convinced that we would have avoided the corporate governance scandals that have plagued the last summer.

"To force private companies to abide by the corporate governance code will do little unless that code is tightened. BHS may have been a private company, but Sports Direct isn't, and we all know what has gone on there."

CBI deputy director-general Josh Hardie said that businesses accepted there were "legitimate concerns" about governance and were ready to work with the Government to find solutions.

But he warned that requirements to publish pay ratios have "the potential to be genuinely misleading", as different sectors "naturally have a wider range of skills, and therefore pay, than others".

And Adam Marshall, director general of the British Chambers of Commerce, said: "While there is a real appetite from many firms to see action on the very small number of companies and executives whose actions negatively impact the business community as a whole, there is also concern that heavy-handed regulation could reduce investment or create significant costs for firms.

"Reforms need to be proportionate, and businesses will want reassurances from Government that any changes resulting from these proposals will not create additional, costly regulatory burdens for medium-sized and smaller companies."

TUC general secretary Frances O'Grady accused Mrs May of backing away from worker representation in the boardroom. Proposals for advisory panels or designated non-executives fell far short of her earlier promise of changes to have "not just consumers represented on company boards, but employees as well".

"This is not what Theresa May promised," said Ms O'Grady. "Today's proposals are disappointing and will not do enough to shake up corporate Britain.

"We need the voice of elected workers in the boardroom, rather than on advisory panels.

"The Prime Minister vowed to govern for working people. She should let them have a say where it really matters."

The Chartered Institute for Personnel and Development said it was "disappointing that the Prime Minister has backtracked on her commitment to put workers on executive boards", which could have "helped bridge the gap between those at the top of organisations and their workforces".

CIPD pay and reward adviser Charles Cotton said the publication of salary ratios would be "a welcome first step in addressing the broken system of executive pay".

A new poll published by the TUC found that 59% support the election of worker representatives onto the boards of large companies, against just 10% who opposed the idea.

:: Opinium Research polled 2,000 UK adults for the TUC between November 25 and 28.

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