UK: Corporate governance - Government response to consultations on reform proposals

The Department for Business, Energy and Industrial Strategy has published its response paper on UK corporate governance reform, following on from the green paper which it published in November 2016.

The key proposals cover reporting on pay ratios, a public register of shareholder opposition on pay, enhanced reporting on stakeholder issues, and options for employee engagement mechanisms. The Government intends the reforms to be effective by June 2018 and to apply to company reporting years commencing on or after that date. It intends to lay the necessary draft legislation before Parliament by March 2018. The Financial Reporting Council has noted that the Government feedback will help inform the development of its fundamental review of the UK Corporate Governance Code, announced earlier this year, which it will launch in late Autumn 2017. Further details are available on our blog post here.

The Investment Association and ICSA have published new guidance on stakeholder engagement, The Stakeholder Voice in Board Decision Making, which includes a discussion of options for employee engagement and illustrative examples of how some companies have engaged with their stakeholders. The option of appointing worker representatives to the board is discussed, including the process for appointment, the support and training they will need, and the arrangements that should be put in place to enable them to communicate with their colleagues in order to receive their views and give them feedback.  Similarly, where a company chooses instead to designate a non-executive director to bring the employee perspective to the board's discussions, consideration should be given to mechanisms for that director to obtain employees' views and report back to them.  The guidance sets out some possible staff engagement mechanisms, including employee forums, surveys, social media, staff meetings, comment boxes and whistleblowing policies.