The Green Paper - Corporate Governance Reform, Nov 2016 | KPMG | UK

The Green Paper - Corporate Governance Reform, November 2016

The Green Paper - Corporate Governance Reform, Nov 2016

The UK Government has issued its Green Paper setting out proposed updates to the corporate governance framework.

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The UK Government has issued its Green Paper setting out proposed updates to the corporate governance framework, with a focus on shareholder influence, other stakeholder interests (for example employees) and extending corporate governance requirements across privately-held companies.

Effective corporate governance is about protecting the interests of a company's shareholders and other stakeholders, for example employees and customers. The Green Paper draws out three main areas for consultation:

Executive pay and shareholder influence

There has been increased investor involvement in executive pay matters, as well as public concern and dissatisfaction with a general consensus that executive pay and long term company performance have become misaligned. It is suggested that shareholders do not have sufficient information and/or overarching power over the companies in which they invest and that there is a need for further intervention by the government to address these concerns. 

Options for reform:

  • Increase shareholder power and voting rights, particularly for companies that have come across significant shareholder opposition to any pay awards within the last two years or those that have lost their existing annual advisory vote;
  • A more prescribed shareholder engagement process;
  • Increase Remuneration Committee input and more stringent requirements for the Remuneration Committee Chairman;
  • More detailed disclosures and transparency of pay, including the reporting of pay ratios, in particular concerning the CEO's pay;
  • Simplified long-term incentives and an increased performance and/or holding period.

Strengthening the wider stakeholder voice

Taking account of employee and other stakeholder interests has also become an increasingly scrutinised area with the desire for a greater focus on wider interests and different perspectives being favoured.

Options for reform:

  • Requirement for stakeholder groups (e.g. employees) to be consulted by way of, for example, 'advisory panels';
  • Appointing non-executive directors (NEDs) to take formal responsibility for articulating stakeholder views;
  • Assigning individual stakeholder representatives to company boards.

Corporate Governance in privately-held companies

Public perception of UK business in general has led to the spotlight being placed on the remuneration of those in powerful roles within privately owned companies despite deteriorating performance. The paper proposes extending existing frameworks to include these businesses.

Options for reform:

  • Suggestions range from extending the Corporate Governance Code to companies which are of similar size and economic significance to public companies, to creating a new governance code entirely, tailored specially to the needs and challenges faced by privately held businesses. 

If you have any queries or questions, please do not hesitate to get in touch with your normal contact or e-mail employersclub@kpmg.co.uk.

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