Britain began consultations on encouraging better corporate behaviour and curbing excessive executive pay on Tuesday, part of Prime Minister Theresa May’s campaign to help those who voted for Brexit in protest at “out of touch” elites.
May is walking a fine line – not wanting to attack business at a time when she needs companies’ support to prepare for Brexit but also trying to keep on board voters who want to leave the European Union and are frustrated with growing inequality.
Taking aim at high executive pay, company boards and the behaviour of large privately-held businesses, her government will ask for opinions on questions such as: Should a new pay ratio reporting requirement be introduced?
But among dozens of proposals, May’s plans to have workers represented on boards have been watered down, with business minister Greg Clark saying the government would not “overturn” Britain’s successful system of having unitary boards.
In a statement, the Conservative government said it wanted to stop “an irresponsible minority of privately-held companies acting carelessly – leaving employees, customers and pension fund beneficiaries to suffer when things go wrong”.
“Ordinary working people, who work hard for their living deserve to have confidence that businesses act responsibly and fairly,” Clark told parliament on Wednesday.
“There is no conflict between good corporate governance and profitability,” he said, describing May’s government as “unashamedly pro-business” to ease concerns in some companies that their businesses may be undermined by the reforms.
In a speech to her Conservative Party last month, May struck fear in some business leaders when she announced that “a change has got to come” because the “actions of the few tar the reputations of the many”.
The director general of the British Chambers of Commerce, a leading business lobby group, welcomed the proposals but warned May that “heavy-handed regulation could reduce investment or create significant costs for firms”.
“Reforms need to be proportionate, and businesses will want reassurances from government that any changes resulting from these proposals will not create additional, costly regulatory burdens for medium-sized and smaller companies,” Adam Marshall said in a statement.
Clark, the business minister, reassured some businesses by saying the government did not want to impose regulation, but rather to use non-legislative standards for companies to make sure that they are held to a “high standard”.
Although May has not named any companies, she is clear that she wants to avoid a repeat of the demise of the BHS department store, which saw the loss of 11,000 jobs and a huge hole in its pension fund that could affect 20,000 pensioners.
The government’s statement said it would look at ways to ensure that employees, customers and other stakeholders are better represented in the boardroom and that executive pay packages reflect company performance.
The proposals will include a demand that the largest private firms comply with “a bespoke code of practice” or explain in their annual accounts why they have not done so, and make privately-held businesses report more consistently on diversity, greenhouse gas emissions and social and community issues.
The proposals will be discussed by a wide range of interested parties before a White Paper is published setting out the ideas for future legislation. This may also be consulted on before a formal bill is presented to parliament.
While describing the proposals as “a big change”, Clark, who will deliver the Green Paper to parliament, said the government would not aim to “overturn” the tradition of company directors not necessarily being the delegates of certain groups.
Saying companies could have workers represented on boards, he added: “It is available for companies … We’re not going to make it happen. But I think what we do want to do is to give a stronger voice to workers on boards.”
On executive pay, he said the government would propose ways of curbing excessive rates, including considering whether there should be an annual binding vote by shareholders.
The average pay of bosses in Britain’s FTSE 100 rose more than 10 percent in 2015 to an average of 5.5 million pounds ($7 million), meaning CEOs now earn 140 times more than their employees on average, according to a survey released in August.
“Executive pay has grown much faster over the last two decades than pay in general and at times is not in line with corporate performance,” Clark said. “It’s right to ask business to play its part in building an economy that works for everyone.”
Source: Reuters (By Elizabeth Piper and William James, Additional reporting by Kylie MacLellan; Editing by Michael Holden and Mark Heinrich)