The government has issued its response to its consultation which started in November 2016 on corporate governance reform. Its response document sets out proposals for a “world-leading package” of corporate governance reforms which it now intends to take forward to increase boardroom accountability and enhance the public’s trust in business. The key reforms are:
- Executive pay – for the first time, new secondary legislation will require listed companies to publish and explain, on an annual basis, the pay ratios between their chief executives and the average pay of their UK workforce. All listed companies with significant shareholder opposition (i.e. 20% or more of shareholders) to executive annual pay packages will also have their names published on a new public register.
- Strengthening the employee, customer and supplier voice – new measures will seek to ensure the employee voice is heard in the boardroom of listed companies. Firstly, the UK Corporate Governance Code will be amended by the Financial Reporting Council (FRC) to require listed companies to either assign a non-executive director to represent employees, create a formal employee advisory council or nominate a director from the workforce. Secondly, through secondary legislation, all companies of a significant size (private as well as public) will have to publicly explain how their directors take employees’, shareholders’ and wider stakeholders’ interests into account in pursuing the success of the business.
- Corporate governance in large privately-held businesses – the FRC will be asked to work with the business community and the government to develop a voluntary set of corporate governance principles for large private companies. In addition, secondary legislation will require companies of a significant size to disclose their corporate governance arrangements in their Directors’ Report and on their website.
The government intends to bring any legislative reforms into effect by June 2018 (to apply to company reporting years commencing on or after that date) and the FRC intends to consult on amendments to the UK Corporate Governance Code in late Autumn 2017 with a view to publishing a revised code by mid-2018. The work on developing voluntary corporate governance principles for large private companies will commence in Autumn 2017.