The UK electorate’s decision to leave the European Union has triggered a period of uncertainty for the nation until Article 50 is triggered at some point next year. Jobs, economic growth and freedom of movement are sure to be big issues for the public, but perhaps one area that is likely to see especially great, albeit largely unforeseen change as a result of the vote is corporate governance.
The EU referendum has allowed people from all walks of life to have their say on the nation’s economic health and arrangements. Governance, fairness, pay and rewards for economic activity at corporate level have all been big talking points – even politicians have felt compelled to discuss these issues.
Chris Philp, Conservative MP for Croydon South, recently launched a paper called Restoring Responsible Ownership. It looked into means of controlling executive pay, which has now rocketed to 150 times more than the average employee. Moreover, results published by MCSI in July found that companies paying their executives in the lowest quintile outperform those paying theirs in the highest quintile by 39% – a figure based on shareholder returns.
Philp believes that this failure by some of the better-paying companies partly stems from shareholders not having a real say on the appointment of the board – even if in theory, they do. For example, there is evidence that even if an independent candidate is appointed to a board, they are kept in line by ‘social distancing’, while others are hesitant to gain a reputation for ‘rocking the boat’, particularly if they aspire to jobs on other boards.
Philp believes that the nomination committee should therefore be replaced by a shareholder committee. This would consist of representatives of the top five shareholders in the company, provided that they had held stock for more than one year. In the event of a given shareholder not wanting the job, it would be passed down to the next largest in line, with those refusing to serve being publicly identified and required to explain to their clients why they did not desire this responsibility.
Under Philp’s proposal, this shareholder committee would be able to identify and nominate board members, set the chief executive’s pay and question the board on corporate behaviour, strategy and performance. While this may not seem to represent a drastic change, it would represent little less than a revolution in how companies are run.
To ensure that your own company’s corporate structure is compliant with the Companies Act 2006 as 2017 looms, it may be wise to undergo a corporate governance audit with London Registrars.