The House of Commons Business, Innovation and Skills Committee has launched an inquiry into corporate governance and executive pay. The committee scrutinises the work of the Department for Business, Innovation and Skills, which was replaced in July by the Department for Business, Energy and Industrial Strategy.
One of Theresa May's most surprising announcements on becoming prime minister was her apparent pledge to put workers on company boards. She also highlighted how executive pay has more than trebled over the past 18 years, despite company performance having remained static, and declared the gap between executive and workers' pay to be "unhealthy".
May suggested measures to introduce greater transparency, including the disclosure of bonus targets and publication of the ratio between the pay of the chief executive and the average company worker. In addition, she argued that executive bonus payments could be better aligned with companies' long-term interests and that shareholder votes on corporate pay should be binding.
The speech in question followed the publicity surrounding the collapse of British Home Stores (BHS) and the ensuing spotlight shone on so-called 'predatory' capitalism. A parliamentary committee report described the "systematic plunder" of the retailer after its former owner, Sir Philip Green, extracted hundreds of millions of pounds from the company before selling it for £1. Thirteen months after the sale, BHS collapsed with the loss of 11,000 jobs and a gaping hole in its pension fund.
The new inquiry will consider three areas: executive pay, directors' duties and composition of boards.
On executive pay, it will examine whether this should take account of companies' long-term performance and explore whether it should reflect the value added by executives relative to junior employees. The committee will also consider whether, in light of recent high-profile shareholder protests against excessive pay, the current framework is working or whether shareholders need a greater role.
When considering directors' duties, the inquiry will 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. Is there effective scrutiny and challenge to boardroom decisions? What more needs to be done to improve corporate governance?
The committee also intends to explore proposals on worker representation on boards and remuneration committees. How would this work? How many employees would be added to boards and how would they be selected? Additionally, the inquiry will consider the evidence in favour of more diverse company boards and how greater diversity of board membership could be achieved.
The inquiry will consider written evidence, which can be submitted online. The deadline is October 26 2016.
For further information on this topic please contact Bethan Carney at Lewis Silkin by telephone (+44 20 7074 8000) or email ([email protected]). The Lewis Silkin website can be accessed at www.lewissilkin.com.