County Court, Legal & Litigation General

Corporate Governance review needs your responses

word cloud corporate governanceIt has received very little publicity but in November 2016 the Government published a green paper outlining proposals for a review of corporate governance.
The green paper provides information on the current situation. It includes proposals for changes and is being used by the Government to stimulate debate, consult with the wider community and gather contributions and suggestions.
The deadline for responses is Friday, February 17, and the paper includes a useful list of questions, as well as information on three ways to respond, either by email, through a website or as hard copy.
The paper covers three main themes, executive pay and its regulation, strengthening the voices of employees, customers and suppliers at board level and the current anomaly whereby large privately-held businesses are subject to lower standards than public companies.
A fourth section has been included asking for suggestions for other ideas or themes that could be explored to strengthen UK corporate governance.
In her introduction to the green paper the Prime Minister emphasises the pledge she has repeatedly made to strengthen the economy and UK business “for everyone, not just the privileged few”.
She argues that for people to retain faith in the economic system “big business must earn and keep the trust and confidence of their customers, employees and the wider public.”

Ethical behaviour is a must for all businesses

Ultimately no business, whether it is a SME or a large corporation, can hope to prosper and grow long term without earning the trust of its employees, customers and suppliers and even the wider community.
While the focus of this green paper is on larger concerns, it contains food for thought for all types of business.
The treatment of employees, fair levels of pay for both workers and senior executives, how the business relates to and contributes to the community in which it is located and how it treats its customers all contribute to its reputation.
While the larger business may seem to have the power to get away with sometimes questionable behaviour this is not a risk SMEs can afford to take if they want to survive and prosper.

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The integrity of leaders is subjected to scrutiny when negotiating their remuneration

The Swiss have just turned down a proposal in a referendum to limit executive pay to no more than 12 times the salary of the lowest paid worker in the same company. This is the second time the Swiss have voted on issues of executive remuneration.  In March by contrast they voted to curb big bonuses and to ban so-called “golden handshakes and goodbyes”.

John Lewis Partnership – a chain of department stores owned by its employees – recently announced a new rule that no boss can earn more than 75 times the lowest paid partner, as they refer to employees. Indeed the Partnership’s managing director Andy Street argued that this was reasonable on the grounds that it compares favourably with many FTSE 100 companies where the gap is wider.

Clearly he, like most employed directors, doesn’t get the point. 

It is no wonder that public anger is growing at the ever-widening remuneration gulf between those at the top and the rest.

Most people, including employees and the public, have a sense of fairness. They know the difference between a reasonable and unreasonable pay and bonus package. Indeed most people recognise the need to reward effort, ability and outstanding performance. But managers, however senior should be incentivised and rewarded for their contribution to a company’s medium and long term performance, not for manipulating short-term profits to boost their bonus. 

Perhaps applying the Swiss 12:1 ratio to executive salaries and imposing a requirement to commute anything above into equity may help promote executives as leaders by restoring some lost integrity. 

What do others think?