Policy and Research Director Peter Swabey says: 'We are pleased to see corporate governance appearing high on the political agenda and welcome Mrs May's keen interest in governance issues. A fresh look at the boardroom is long overdue and she has proposed some radical solutions to address the issues of executive pay and stakeholder engagement. However, whilst agreeing with their objectives, we wonder whether these changes will have the anticipated effects and much will depend on how they are implemented.
‘The current approach of reporting and voting on remuneration policies has not prevented the escalation in directors’ fees and bonuses and ICSA has consistently argued that some pay decisions do not bear scrutiny. We agree that there is a need to rein in executive pay, but it is not clear that increasing the frequency of those votes will be the most effective way of doing so. We would favour an alternative approach of encouraging shareholders to make greater use of their existing rights to vote directors off the board, something which they have been reluctant to do. If the individuals responsible for flawed remuneration policies felt there was a real risk of their losing their seats on the board, this might focus their minds rather more.
‘Clearly there is a need for the boards and remuneration committees of many companies to pay more attention to the views of, and impact on, their employees and customers. While appointing directors specifically to represent those groups might achieve that, it is not clear how that would be compatible with the statutory duty of the board collectively to promote the success of the company for the benefit of its members as a whole. It may be that there is a need to revisit the definition of directors’ duties in company law to ensure that the interests of these groups are given due weight.’
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