Call for tougher governance rules for large private businesses

Government, in its latest green paper, has targeted privately owned businesses with its plans to extend corporate governance as well as review executive pay in an aim to strengthen the UK’s governing framework 

Plans to strengthen the UK’s corporate governance framework and shareholder influence over executive pay have been defined by Greg Clark, business and energy secretary.

The paper focuses on whether largest private companies in the UK should have tougher corporate governance rules as well as concerns over executive pay and increasing the representation of workers, customers, suppliers and investors in the boardroom.

In the UK there are approximately 2,500 private companies and 90 LLPs with more than 1,000 employees. These are currently not required to meet the same corporate governance and reporting standards as publicly listed companies.

Simon Walker, director general of the Institute of Directors, said: ‘The most important element of the proposals will be greater scrutiny for unlisted companies, which is long overdue.

‘There are around 2,500 private firms in the UK which employ at least 1,000 people, and the damage that can occur when they are poorly governed can be substantial. We welcome the government’s decision to throw its weight behind a code of practice for large unlisted business.’

Extending tougher corporate governance to privately owned businesses would benefit stakeholders that suffer when private companies fail due to bad governance for example the recent failure of BHS.

Also, there has been a decline in the number of publicly owned businesses while the number of privately owned businesses has risen, meaning more businesses are becoming excluded from tough governing rules.

Greg Clark said: ‘The government is determined to make Britain one of the best places in the world to work, to invest and to do business, and part of that means continuing to have a framework of corporate governance that is admired across the world.

‘This review will help us achieve that aim and the views of businesses, investors, employees, consumers and others with an interest in successful business are warmly welcomed.’

The FRC favours the plans and will consult to update the UK Corporate Governance Code and associated guidance in 2017 to ensure that high standards of governance continue to bring in international investment.

The FRC said: 'We have already made recommendations to the BEIS Select Committee corporate governance inquiry. These include company directors reporting on their responsibilities under section 172 of the Companies Act 2006, developing the role of the remuneration committee and what happens when there are significant votes against the remuneration report, and ensuring that boards take account of a more diverse range of views in their decision-making.

'The FRC stands ready to develop and implement these proposals to help support a strong economy and meet the needs of wider society.'

The consultation closes on 17 February and calls for businesses, investors, workers and members of the public to give their views.

Corporate governance reform: green paper is here.


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