UK: Both Opportunity And Threat

Last Updated: 20 March 2017
Article by Peter Swabey

ICSA's response to the corporate governance Green Paper

On 29 November, the UK Government published its long-awaited Green Paper on corporate governance reform. This is a wide-ranging review of the governance landscape in the UK and represents both a huge opportunity and a huge threat.

It is an opportunity because it enables a review of some of the issues that have created a general lack of trust in business, and a threat as there is a risk that responses will focus on individual poor examples as a basis for change, rather than the good practice of the majority of companies. This could damage the UK corporate governance model, a system which is widely admired and often replicated around the world.

At ICSA, we take very seriously our Royal Charter duty to lead 'effective governance'. Company secretaries have a key role in leading effective governance in their companies and advising their boards. Our investor members have a similarly key role in investor oversight of that work.

We therefore have a keen interest in the issues raised in the Green Paper and, we believe, an unrivalled position from which to understand those issues through our members' access to discussions on executive pay and attendance at remuneration committee and board meetings.

The Green Paper focuses on three issues:

  • Executive pay
  • Strengthening the employee, customer and wider stakeholder voice
  • Corporate governance in large privately-held businesses.

Executive pay

Some action needs to be taken about executive pay. But it is essential to be clear about the ill we are seeking to cure, because not all of those who criticise 'high pay' are coming from the same viewpoint and the solution to the problem depends very much on what the problem is. Is it that pay is disassociated from performance; that there is income inequality in our society; or that some people are simply paid too much?

Each of these concerns is a valid one for the Government to address, but they are different and so the appropriate solution for each of them will also differ. There are a raft of legal and regulatory powers open to the Government and it is important that they pick the right ones to address the ill they are seeking to resolve.

"There is a socially unsustainable gap between the highest and lowest paid in society"

In terms of the linkage of pay to performance, there has been a great deal of effective work done in relation to public companies to address this issue. This has primarily been led by shareholders, who have reviewed and approved, or not as the case may be, executive pay policies that are designed to align executive and shareholder interests, and which recognise, where appropriate, the need to reflect the international talent pool from which some companies must seek senior executives.

Shareholders have powers to reject pay policies of which they disapprove and to indicate to boards that they do not agree with the manner in which a policy has been implemented.

If the central issue is that of income inequality in society, that is not just a corporate governance issue and so not one for companies and shareholders to address in isolation. There is a considerable and socially unsustainable gap between the highest and lowest paid in society, but there are a whole range of fiscal and other remedies, including raising minimum pay and giving greater employment rights to temporary workers, available to the Government to address these issues of inequality.

Similar arguments apply to quantum – the idea that there is a figure above which it is unreasonable for anyone to be paid. But executives of listed companies are not the only high-income earners in our society.

For good reason, their pay is highly visible, but that does not make them the highest paid in our society, compared with, for example, some of those in equivalent positions in private companies or professional firms, to say nothing of entertainment or sports stars or those with income from inherited wealth.

The Government may legislate to restrict the quantum of pay if it wishes, but the argument for limiting such restrictions only to the employees of quoted companies has yet to be made and doing so will address only a small proportion of high incomes.

We do not believe shareholders need stronger powers over executive pay at this time. Executive pay in UK companies has never been more regulated and only a small minority of companies are the target of shareholder anger.

In our view, the most effective policy intervention would be one that addressed specific areas of abuse, rather than the market as a whole. It would be sensible to evaluate the impact of the 2013 regulations, which gave shareholders a binding vote on pay, before considering changes. A more appropriate time for a review of executive pay regulations would be this autumn, when the results of the 2017 AGM season and, therefore, the results of the 2013 reforms, can better be assessed.

Strengthening the stakeholder voice

Employees and other stakeholders are enormously important to companies, and the experience of our members is that many boards already take their interests into account.

However, the solution that works for one company may not work for others. We believe that guidance will therefore be more effective than any legislative or regulatory solution, and that any legislative or regulatory solution around employee, customer and stakeholder engagement should be dependent on societal impact – by which we mean the impact that company has on the society in which it operates, whether through the number of people it employs, its position in the marketplace, and so on – rather than simply a feature of its ownership structure.

ICSA is working with the Investment Association on a joint project to look at existing good practice and develop guidance in this area.

Large, privately-held businesses

The governance of private companies is a complex issue because they range from those where the owners and directors are the same people, to those where the directors are merely managers. There have been some high-profile failures in private companies, but there is little evidence of a problem in the majority of cases. So any new requirements must be proportionate.

There are two proposals on the table: that companies should comply with a corporate governance code and that they should report on their compliance. There are two problems with these. To whom do such companies report, and by whom is compliance with a code enforced?

"The governance of private companies is an area that could benefit from improvement, most notably in terms of transparency"

Current compliance and reporting requirements are focused on reporting by the users of capital to the providers of capital, and we believe that raising capital from the public should continue to be the main threshold for requiring that governance arrangements be reported.

However, companies with significant impact on the society in which they operate have a responsibility as well – reporting to society on their compliance with corporate governance standards.

Many private companies already comply with much of the UK Corporate Governance Code because it is simply good business to do so, and some larger private companies choose to report on their governance voluntarily. However, the governance of private companies is an area that could benefit from improvement, most notably in terms of transparency.

As we said in a letter to the Prime Minister in August 2016: 'The fact that a large company may be privately owned does not reduce the public impact when it fails. Arguing that there should be different expectations on the board of directors simply because there is a different ownership structure is a red herring.

'The Companies Act 2006 already recognises this to be the case, which is why the duties of directors set out in Part 10 of the Act – which include a requirement to consider the long-term consequences of their decisions and the impact on their employees and the community – apply to directors of all companies, not only publicly-quoted ones ... the boards of larger private companies should be expected to aspire to the same standards of governance as those in the listed sector.'

The best solution might be for a governance code for private companies to be described as 'guidance' and focus on transparency rather than accountability, although the challenge of an effective and proportionate 'enforcement mechanism' remains. ICSA would be very willing to work with the FRC to develop such guidance.

The role of the company secretary

The Green Paper also gives respondents an opportunity to put forward their suggestions for improving corporate governance in the UK.

An additional measure to strengthen the corporate governance framework for the largest privately-held businesses would be to require that they have specialist governance support for the board. The company secretary and the chairman are key to governance practices within a company. Larger private companies tend to have a company secretary, but there is no requirement for them to do so. There should be.

Second, to support the independence of the role, we believe the remuneration of the company secretary should be the responsibility of the remuneration committee rather than any executive director. This will have the important benefit of increasing the independence of the board's principal governance advisor by removing the company secretary's payfrom the direct influence of other executives.

Finally, we believe that the right to provide a statement of circumstances to shareholders, granted under the Companies Act to an auditor who ceases to hold office, should be extended to a company secretary.

This has been a significant piece of work and we are grateful to all those members and friends who have helped us develop our response. We will continue to liaise with the Government and the FRC on these issues.

Peter Swabey is Policy and Research Director at ICSA: The Governance Institute

Green Paper response

The full ICSA response to the Green Paper can be found on our website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.