The government’s Business Innovation and Skills Committee is launching an inquiry into corporate governance that focuses on executive pay, directors’ duties and boardroom composition, including diversity and worker representation.
The inquiry follows several high-profile corporate governance failures, including at Sports Direct and BHS.
On executive pay, the committee will look at whether pay should reflect an organisation’s long-term performance, and whether shareholders need greater powers over pay. The latest report from the High Pay Centre found that CEO pay in the FTSE 100 rose by 10% in a year to an average annual package of £5.48 million.
On board composition, the committee will examine whether workers should be given a place on company boards and how this will work in practice. Prime minister Theresa May has previously suggested worker representation on boards would serve to curb excessive executive pay and unethical behaviour.
The committee will also focus on how organisations can increase the number of women in executive positions. While the Davies Review target of 25% women on boards has been met, this is mainly because of the rise in women in non-executive roles. The Female FTSE Board Report 2016 report from Cranfield University found that only 9.7% of executive directorships are held by women in the FTSE 100, falling to 5.6% in the FTSE 250.
Chair of the BIS Committee Iain Wright said the government needs to “look again at the laws that govern business and how they are enforced”.
“Good corporate governance shouldn’t be a hindrance to business; it can contribute to companies’ long-term prosperity and performance as well as showing the world that a business is transparent, accountable and responsible, thereby contributing to investor confidence,” he said.
On the specifics he added: “We’re interested in hearing about the barriers to women achieving senior executive positions, the measures being taken to remedy the situation, and what action government might take to improve this.
“We are also keen to explore the issue of ever-growing pay increases to executives, especially when there often seems to be very little connection with company performance or any pay rises to the vast majority of employees. While there has been some recent shareholder actions against these ever larger pay packages, can we have any confidence that the current framework for controlling pay is working?”
Simon Walker, director general of the Institute of Directors, encouraged company directors to “fully engage in this debate”.
“The reputation of corporate Britain has not recovered from the financial crisis, and there are important questions that need to be addressed on issues including transparency, executive pay and board diversity,” he said.
TUC general secretary Frances O’Grady welcomed the news. “Poor corporate governance contributes not only to high-profile corporate disasters such as BHS, but also to short-termism and excessive executive pay across much of the private sector,” she said.
You are invited to submit evidence to the BIS Committee by 26 October 2016.
