On 29 August 2017, BEIS published the Government's response to the green paper consultation on corporate governance reform, published on 29 November 2016. The Government response sets out a number of headline proposals for reform across three specific aspects of corporate governance on which BEIS consulted:
- Executive pay: the Government proposes changes to the UK's executive pay framework for quoted companies across four main areas: shareholder voting and other rights; the role of remuneration committees; transparency in executive pay; and long-term executive pay incentives. The Government intends to introduce pay ratio reporting that compares the remuneration of the CEO with average UK employee pay for quoted companies in order to help set executive pay in the wider company context.
- Strengthening the employee, customer and supplier voice: the Government intends to invite the FRC to consult on the development of a new principle in the UK Corporate Governance Code ("UKCGC") establishing the importance of strengthening the voice of employees and other stakeholder interests at board level. It also invites the FRC to consult on the introduction of a specific provision in the UKCGC requiring premium listed companies to adopt, on a "comply or explain" basis, one of three employee engagement mechanisms. BEIS noted that ICSA and the Investment Association are already developing practical guidance on boardroom engagement. This guidance has now been issued as "The Stakeholder Voice in Board Decision-Making" and is available at:
- Corporate governance in large privately held businesses: the Government intends to invite the FRC, together with the Institute of Directors, the CBI, the Institute for Family Business, the BVCA and others to develop a voluntary set of corporate governance principles for large private companies under the chairmanship of a business figure with relevant experience.
The current intention is to bring the reforms into effect by June 2018, in order to apply to company reporting years commencing on or after that date.
We previously published a client briefing on the reform on 1 September 2017, which can be accessed here:
http://www.shearman.com/en/newsinsights/publications/2017/09/uk-corporate-governance-reform
The full text of the Government's response is available at:
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