The Business, Innovation and Skills (BIS) Committee has today launched an inquiry on corporate governance, focussing on executive pay, directors duties, and the composition of boardrooms, including worker representation and gender balance in executive positions. The BIS Committee inquiry follows on from recently highlighted corporate governance failings and in the wake of commitments from the Prime Minister to overhaul corporate governance.

The Business, Innovation and Skills Committee is appointed by the House of Commons to examine the administration, expenditure and policy of the Department for Business, Innovation and Skills (BIS) and its associated public bodies.

Background to the inquiry

The BIS Committee wants to examine whether executive pay should take account of companies' long-term performance. The Committee is also keen to explore whether executive pay should reflect the value added by executives relative to junior employees. The inquiry will also look at whether recent high-profile shareholder actions suggest the current framework is working or whether shareholders need a greater role.

The inquiry will also examine whether company law is sufficiently clear on the role of directors and non-executive directors and will look at how the interests of shareholders and employees are best balanced and whether there is an effective voice and challenge to boardroom decisions.

Finally, following the Davies Review, which successfully focussed on increasing the number of non-executive directors, the BIS Committee wants to examine how greater diversity of board membership could be achieved and what more should be done to increase the number of women in executive positions. The Committee also wants to explore proposals on worker representation on boards and remuneration committees and suggestions as to how this would work.

Terms of reference

Terms of reference for the inquiry include the following:

Directors Duties

  1. Is company law sufficiently clear on the roles of directors and non-executive directors, and are those duties the right ones?

  2. Is the duty to promote the long-term success of the company clear and enforceable?

  3. How are the interests of shareholders, current and former employees best balanced?

  4. How best should board decisions be scrutinised and open to challenge?

  5. Should there be greater alignment between the rules governing public and private companies?

  6. Should additional duties be placed on companies to promote greater transparency, such as around the roles of advisors, taking into account the impact of this on business behaviour and costs to business?

  7. Should the government regulate or rely on guidance and professional bodies to ensure that directors fulfil their duties effectively?

Executive pay

  1. How should executive pay take account of companies’ long-term performance?

  2. Should executive pay reflect the value added by executives to companies relative to more junior employees?

  3. Is there any evidence that executive pay is too high and should the government seek to influence or control executive pay?

  4. Do recent high-profile shareholder actions demonstrate that the current framework for controlling executive pay is bedding in effectively or should shareholders have a greater role?

Board composition

  1. What evidence is there that more diverse company boards perform better?

  2. How should greater diversity of board membership be achieved?

  3. Should there be worker representation on boards and/or remuneration committees?

  4. What more should be done to increase the number of women in executive positions on boards?

Next Steps

The BIS Committee has requested submissions by 26 October 2016.