Corporate governance reform to ‘restore trust in British business’

Last year, the business behaviour of Sir Phillip Green of BHS and Mike Ashley of Sports Direct put them in the centre of a media storm. Their very high profile failings threatened to undermine the reputation of British companies, prompting the Department of Business, Innovation and Skills to announce that it would be carrying out a new inquiry into practices at the top tier of large businesses.

Accordingly, on 29 November 2016, the government published its Green Paper: Corporate Governance Reform. The paper sought views from businesses, investors, employees and members of the general public on the three areas listed below, as well as inviting any other ideas that could potentially strengthen the UK’s corporate governance framework:

• Measures to increase transparency and shareholder influence in relation to executive pay (which has grown much faster than corporate performance) and pay generally, as well as improving the effectiveness of long-term pay incentives

• Measures to increase the connection between boards of directors and other groups with an interest in corporate performance such as employees and small suppliers, to give them a greater voice at board level

• Whether the features of formal corporate governance and reporting standards which have worked well in public listed companies should be extended to the largest privately-held companies.

Regardless of whether the government decides to go down the legislative or non-legislative route, it is hoped that the reforms will help to fulfil its aim of restoring public trust in British business. The Green Paper consultation closed in February and the government is now analysing public feedback to enable it to publish its own response in the coming months. We hope to update you on this in a future article.