Corporate governance proposals rule out workers on boards

boardroom

A shorter, sharper code of corporate governance proposed by the Financial Reporting Council appears to confirm that that the Government has abandoned Theresa May’s pledge to put workers in the boardroom.

Instead the FRC, the regulator responsible for corporate governance, is consulting on three options to bring more worker representation to executive decision making: to assign a non-executive director to represent employees, to create an employee advisory council or to nominate a director from the workforce.

Peter Cheese, chief executive of the CIPD, said: “This is a significant step forward in recognising the value of the workforce and the need for its voice to be heard at board level.

“The FRC rightly recognises that in order to drive sustainable culture change and build trust in business, boards must focus more on values, behaviours and a wider stakeholder voice beyond that of shareholders, with particular attention to the voice of the workforce.”

He added that the CIPD supported the three options to enhance employee voice, saying: “No single approach can suit all firms’ situations so it’s important that there is flexibility for businesses in choosing an option that is most appropriate for them.”

The proposed revised corporate governance code focuses on sustainable, long-term concerns in an attempt to address issues of public trust in listed companies and aims to ensure that the UK continues to attract global investment after Brexit.

The revised code also sets out good practice so that boards can:

  • Establish a company’s purpose, strategy and values and satisfy themselves that these and their culture are aligned;
  • Undertake effective engagement with wider stakeholders, to improve trust and achieve mutual benefit, and to have regard to wider society;
  • Ensure appointments to boards and succession plans are based on merit and objective criteria to avoid group think, and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths;
  • Be more specific about actions when they encounter significant shareholder opposition on any resolution, including those on executive pay policies and awards; and
  • Give remuneration committees broader responsibility and discretion for overseeing how remuneration and workforce policies align with strategic objectives.

Under the proposals, executives would be required to hold on to bonuses paid as shares for a minimum of five years, in an attempt to encourage leadership behaviour geared toward long-term success.

But Stefan Stern, director of the High Pay Centre, a think tank focusing on executive remuneration, said: “No incentive plan which pays out after five years should be labelled ‘long term’. But insisting on a five- rather than three-year period for such schemes is a modest improvement.”

Sir Win Bischoff, the FRC’s chairman, said: “At this critical time and as the country approaches Brexit, a revised code will be essential to restoring trust in business, attracting investment and ensuring the long-term success of companies for members and wider society.

“We have engaged with many stakeholders and incorporated suggestions from the Government’s green paper on corporate governance reforms, to produce a code which is shorter and sharper and fit for purpose.”

He added that forming a healthy corporate culture is “integral to the credibility of a company”, and that engaging with wider society must not been seen as a tick-box exercise.

TUC general secretary Frances O’Grady said: “The best way that firms can get workers’ views is through trade unions. Unions can identify common views, and help staff speak anonymously on sensitive issues.

“The next step is for the corporate governance code to recognise the important role that unions play in the long-term success of companies.”

The consultation closes on 28 February 2018.

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