Business Secretary Greg Clark has introduced new laws which are aimed to enhance the public’s trust in business.
The Government’s new package of corporate governance reforms will enhance the transparency of big business to shareholders, employees and the public.
For the first time, listed companies will have to publish pay ratios between chief executives and their average UK worker under government reforms to boardroom accountability.
These will include the world’s first public register of listed companies where a fifth of investors have objected to executive annual pay packages. This new scheme will be set up in the autumn and overseen by the Investment Association, a trade body that represents UK investment managers.
The Government is also set to introduce new laws to require: around 900 listed companies to annually publish and justify the pay ratio between CEOs and their average UK worker; all companies of a significant size to publicly explain how their directors take employees’ and shareholders’ interests into account; and all large companies to make their responsible business arrangements public.
Business Secretary Greg Clark said: “One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business.
“Our legal system, our framework of company law and our standards of corporate governance have long been admired around the world. We have maintained such a reputation by keeping our corporate governance framework under review.
“The reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”
The Business Secretary will seek to ensure employees’ interests are better represented at board level of listed companies. He will ask the Financial Reporting Council (FRC) to introduce a new requirement in the code to achieve this.
Under the code’s “comply or explain” basis, firms would have to either assign a non-executive director to represent employees; create an employee advisory council; or nominate a director from the workforce.
The FRC will also be asked to work with the business community and the Government to develop a voluntary set of corporate governance principles for large private companies.
Stephen Haddrill, CEO of the FRC, commented: “The UK’s deserved reputation for good corporate governance, earned over the last 25 years, has underpinned British business success.
“How we develop the framework will be key to boosting competitiveness, transparency and integrity in business particularly after Brexit. Successful and sustainable business are not just good for the economy, they support wider society by providing jobs and helping to create prosperity.
“The FRC is undertaking a fundamental review of the Corporate Governance Code. The Government’s feedback will help inform the development our consultation later this year.
“Large private companies are integral to the UK economy as significant employers and supporters of communities and families. It is right that we develop a set of corporate governance principles to enhance confidence that they act in the public interest.”
The Government intends to bring legislative reforms into effect by June 2018.