Blog : BOARD TALK
|Posted on October 2, 2013 at 5:45 PM|
October has arrived quietly - and with it brought signifiicant reforms of UK company law of interest to its boardrooms.
"Shareholders of around 900 UK quoted companies will now, as a result of government reforms, be better prepared to hold companies to account. They will now have access to clearer information on the pay of top executives and will be able to exercise their new legally binding vote on executive pay."
In fact, any remuneration policy will now require a vote of more than 50% of shareholders for it to become policy. Transparency is the buzzword going forward and 'pay for performance' - as well as exit payments are under the spotlight.
"In addition, changes to simplify and strengthen companies’ non-financial reports will also come into force. These will strengthen the ability of shareholders to hold quoted companies to account over the course of the financial year. From 1 October, the reports will include additional information on human rights issues, the gender of the board and senior management and disclosures on greenhouse gas emissions."
The italicised quotes are from an announcment from the UK's Department of Business, Innovation & Skills (BIS). The emphasis on gender is mine.
Executive pay first - as Business Secretary Vince Cable put it: "Our reforms mean shareholders will now no longer be kept in the dark. They now have powerful tools for every shareholder - big or small- to speak up and challenge companies over excessive pay and prevent big bosses being rewarded for failure"
So now we sit back and see whether shareholders actually use their power.
On gender, companies will now have to provide "a statement of the gender balance at board level, in senior management and in the company as a whole." This will focus attention on board diversity and the company’s ability to retain and develop its most talented employees" says BIS.
So the spotlight has been turned onto a higher beam on UK plcs when it comes to diversity.
And there are further rumblings when it comes to executive pay. Today corporate governance watchdog the FRC announced it would be consulting on whether to change the UK Corporate Governance Code on a number of issues around executive remuneration.
In good British fashion, this announcement too slipped quietly in on an early October morning. But in fact its contents are potentially quite explosive.
The FRC is consulting on three specific proposals: clawback arrangements; whether non-executive directors who are also executive directors in other companies should sit on the remuneration committee; and what actions companies might take if they fail to obtain at least a substantial majority in support of a resolution on remuneration.
Now I haven't checked this fact but Ruth Bender the corporate finance/corporate governance guru at Cranfield University is 100% reliable- she tweeted @Ruth999 : 'FRC: %FTSE350 whose Remcos include NEDs who are also execs in other FTSE companies : 31% of the 100; 15% of the 250.'
What the FRC is essentially doing is seeing if cross-directorships on remuneration committees are helping to maintain "the status quo in setting culture and pay levels."
Clever FRC, I say. At this rate they will be looking at boardroom recruitment next.
Bear in mind this is an FRC consultation at this stage. And yet the reactions are already flooding in. Here's one from the ICAEW head of corporate governance, Jo Iwasaki:
“Shareholder rights over remuneration has been on public consciousness, and best practice guidance on robust engagement has only been issued this month. Good practice takes time to evolve and guidance needs time to embed. While executive remuneration has been high in the public’s awareness, it is not clear that there is appetite for further changes to the existing Corporate Governance Code. (my emphasis)
Furthermore, the UK Corporate Governance Code draws its strength, durability and consistency from its principles-based approach and we recognise the issues in the consultation."
Hmm. Who would be the FRC ? Or anyone involved in the business of drawing up the corporate governance code for that matter?
It's a delicate business, certainly as we continue to dance around 'comply or explain' - with no other measures of resort.