Company owners who keep a close eye on developments at the Department for Business, Energy & Industrial Strategy may have noticed its announcement in late August of the Government’s response to the Green Paper consultation on corporate governance reform.

Business Secretary Greg Clark set out reforms aimed at increasing boardroom accountability and enhancing the public’s trust in business, stating that the changes would “build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”

What are the reforms planned?

The proposed changes include a duty for listed companies to publish and justify the pay ratio between their CEO and the average pay of their UK workforce, with an explanation of changes during the year.

Another part of the reforms will be the creation of a public register of listed companies where more than 20% of shareholders have objected to executive pay and other resolutions, together with a record on how the company is dealing with these shareholder concerns. The Government intends to have the register ready within the next few months.

Representation on listed company boards is another key focus of the reforms, with employee and other stakeholder voices set to be strengthened. The Financial Reporting Council (FRC) will be invited to consult on the introduction of a provision demanding that premium listed companies adopt – on the usual ‘comply or explain’ basis – one of three mechanisms. Those are the nomination of a designated non-executive director to represent employees, the creation of an employee advisory council or the appointment of a director directly from that company’s staff.

Both listed and unlisted companies of a certain size will also be required to explain their directors’ manner of compliance with the requirements of section 172 of the Companies Act 2006 – the duty to promote the success of the company. Finally, there will also be greater scrutiny of large private businesses, which will be subject to the first corporate governance code for unlisted companies, to be developed by the FRC.

Contact London Registrars for your company secretarial audit

Can you be confident of your own company working to the highest standards of governance? Enquire now to London Registrars about having a company secretarial audit undertaken to help to ensure your organisation’s complete professionalism, effectiveness and compliance, not least in readiness for the latest announced reforms.

October, 2017