MPs launch corporate governance inquiry

The business, innovation, and skills (BIS) committee has launched an inquiry on corporate governance, focussing on executive pay, directors’ duties, and the composition of boardrooms, including worker representation and gender balance in executive positions

The move follows recent inquiries by the committee into BHS and Sports Direct, and in the wake of commitments from prime minister Theresa May to overhaul corporate governance.

Iain Wright, chair of the BIS committee, said: ‘Irresponsible business behaviour and poor corporate governance ill serves workers, but it also tarnishes the reputation of business and undermines public trust in enterprise.

‘We need to look again at the laws that govern business and how they are enforced. Good corporate governance shouldn't be a hindrance to business; it can contribute to companies' long-term prosperity and performance as well as showing to the world that a business is transparent, accountable and responsible.’

The inquiry will examine whether company law is sufficiently clear on the role of directors and non-executive directors and look at how the interests of shareholders and employees are best balanced. It will consider whether there is an effective voice and challenge to boardroom decisions and whether the provisions of the 1992 Cadbury report been embedded in British business practice and culture.

MPs will also look at whether there should be greater alignment between the rules governing public and private companies, and whether additional duties should be placed on companies to promote greater transparency, for example, around the roles of advisors.

The BIS committee wants to examine whether executive pay should take account of companies' long-term performance and investigate what it calls the ‘steep rise’ in pay levels at the top of companies. The committee says it is keen to explore whether executive pay should reflect the value added by executives relative to junior employees. The inquiry will also look at whether recent high-profile shareholder actions suggest the current framework is working, or whether shareholders need a greater role, and the scope for government to influence pay decisions.

Wright said: ‘Whopping pay awards to senior executives are not only vastly bigger than workers could ever expect to receive but often seem to have very little relationship to company performance. While there has been some recent shareholder actions against these ever larger pay packages, can we have any confidence that the current framework for controlling pay is working?’

The committee will also be looking at what more should be done to increase the number of women in executive positions, the barriers to women achieving senior positions, and what action the government might take to improve the gender balance. MPs will also explore wider proposals to increase board diversity, including worker representation on boards and remuneration committees.

Wright said: ‘The prime minister has spoken of workers representation on boards. We want to examine what this might look like in practice, how would this work, how would workers be selected?’

 The BIS committee is asking for written submissions by 26 October. Details are here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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