IoD: BEIS committee report builds momentum behind private company code

Responding to the report on Corporate Governance from the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee released on Wednesday, Stephen Martin, Director General of the Institute of Directors, said:

“The UK has the most highly-respected corporate governance system in the world, but as this report shows, there are still some worrying gaps. Trust in business remains low, not helped by scandals at companies like BHS and public anger over high pay at some large companies. The Committee has put forward a range of proposals which we urge the Government to consider.”

On the recommendation of a voluntary code of governance for private companies, Martin added:

“We have had concerns about the lack of transparency in the governance of unlisted firms for some time. A code for private companies is supported by two-thirds of IoD members and should be established for the largest firms. The code should not be as onerous as the one which currently exists for listed firms, and should be led by the business community, working together with government and regulators.“

On proposals to moderate executive pay:

“We welcome the suggestion of a second vote on directors’ pay where at least a quarter of shareholders vote against the company’s plans. Whilst we support the increased focus on the role of remuneration committees, we have some concerns about the removal of the chair when pay policies don’t receive the backing of at least 75 per cent of shareholders, which is a high, and slightly arbitrary, threshold. The whole board, however, has an obligation to ensure that pay policies are linked to performance and take account of the views of investors, employees and wider stakeholders.”

On plans to give the Financial Reporting Council additional powers to hold company directors to account:

“Boards have an obligation, under section 172 of the Companies Act, to ensure that decisions are made for the long term interest of the company as well its shareholders, employees and customers. Giving the FRC additional powers to take legal action under section 172 would be a bold step, but there is no point in having a regulator if it doesn’t have teeth.”

On the suggestion that the FRC give businesses a red, amber, green rating for their corporate governance:

“Anything that makes governance more transparent and understandable to investors is a good thing. The IoD has for two years been running its own study* of governance at the UK’s biggest companies, covering many different factors. Any rating the FRC adopts should similarly take account of the many different elements that make up good governance.”

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