Government announces governance reforms designed to increase public trust in business

On 29 August 2017 the Government published its response to the Green Paper consultation on corporate governance reform.  The reforms aim to increase boardroom accountability and enhance the public’s trust in business, a sentiment echoed by Business Secretary Greg Clark who said “…[these] reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders

They include:

  • •  Justifying pay ratios – listed companies will have a duty to publish and justify the pay ratio between their CEO and the average pay of their UK workforce, explaining changes during the year.

  • •  Dealing with shareholder opposition to executive pay – a public register will be created of listed companies encountering shareholder opposition of more than 20% to executive pay and other resolutions, along with a record of how these shareholder concerns are being dealt with.The aim is for this register to be available within the next few months.

  • •  Representation on listed company boards – employee and other stakeholder voices will be strenghthened on listed company boards.The FRC will be invited to consult on introducing a provision requiring premium listed companies to adopt (on the usual ‘comply or explain’ basis) one of three mechanisms: nominating a designated non-executive director to represent employees, creating an employee advisory council or appointing a director directly from the workforce.

  • •  Requiring all companies of a certain size (listed and unlisted) to explain how their directors comply with the requirements of section 172 of the Companies Act 2006 (duty to promote the success of the company).

  • •  Large private businesses will face more scrutiny with plans to develop the first corporate governance code for unlisted companies, to be developed by the FRC

    Jordans will be following these developments with keen interest and we will be issuing regular articles on how companies should deal with the practical implications of these changes as they are introduced.

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