The UK’s corporate governance framework, hailed by the current Secretary of State for Business, Energy and Industrial Strategy as “one of Britain’s biggest assets in competing in the global economy”, is distinctive for its flexible, “comply-or-explain” approach to regulation. However, in the wake of several highly publicised scandals around corporate mismanagement, and amid growing public and media focus on executive pay, Prime Minister Theresa May’s government launched a consultation on 29 November 2016, in the form of a green paper, to assess whether the current framework remains fit for purpose, or whether reforms are required. The green paper invites views on proposed reforms in three key areas.
First, the consultation focuses on executive pay, namely, enhancing shareholder voting rights and engagement, transparency and the effectiveness of remuneration committees and better aligning long-term incentive plans with the interest of quoted companies and shareholders.
A secondary focus of the paper is the participation of employees and other stakeholders in corporate decision-making processes. The proposals come after a call made by Mrs May during her leadership campaign for employee representation on company boards.
Finally, the paper identifies a trend towards conducting business through large privately held companies, rather than public or quoted companies. It asks whether, as a result of this development, the reach of the corporate governance framework should be extended to private companies whose size exceeds a certain threshold.
Our memorandum examines the government’s proposals in relation to each of these areas in the context of published investor guidance and recent calls for reform from stakeholder associations and politicians, with the aim of aiding discussion and indicating likely future developments.