11 December 2016 by Peter Swabey
Let us not miss an opportunity to guide real reform, says Peter Swabey
In Julius Caesar, Shakespeare wrote, ‘There is a tide in the affairs of men which, taken at the flood, leads on to fortune. Omitted, all the voyage of their lives is bound in shallows and in miseries’. That tide is here.
On 29 November, the Government published its green paper on corporate governance reform. This has been anticipated for some months but is, it should be clear, part of a completely different process from the inquiry currently being undertaken by the BEIS Committee in Parliament. And it is the real deal.
In contrast to the inquiry being undertaken by the Select Committee, the green paper is part of the Government’s legislative process – a Government inquiry, if you like – examining some of the key issues and seeking comments on various proposals for reform.
The subjects on which the green paper is focused are no surprise, given both the work of the Select Committee and the issues that have raised corporate governance to the top of the public agenda: executive pay, strengthening the employee, customer and wider stakeholder voice, and corporate governance in large privately-held businesses.
For executive pay, the Government is considering a variety of options around augmenting the voting rights of shareholders, enhancing shareholder engagement, refocusing the role of the remuneration committee, requiring additional remuneration reporting and reviewing the effectiveness of long-term incentives. There are some interesting ideas here, but I was left wondering, as we mentioned in our submission to the Select Committee, whether all of this is solely an issue in the corporate sector.
On strengthening the employee, customer and wider stakeholder voice, the Government is seeking views on the effectiveness of the current statutory requirements on directors’ duties and a variety of other options for increasing the influence of stakeholders. This was examined in detail back in 2006 but one of the most topical issues is a general lack of trust in organisations across all sectors, and the shareholder-primacy model that was right in 2006 should be reviewed to see whether it is still the right model for the future.
The section on corporate governance in big privately-held businesses is, unsurprisingly, largely a reaction to the issues at BHS and the degree to which these and similar issues in private companies might have been prevented if the company was obliged to comply with a (or the) Corporate Governance Code. It seems to us that, if not prevented, they might more easily have been foreseen with such a code but independent boards, supported by an independent company secretary or other governance professional, might be a more effective control.
Finally, the green paper concludes with a free-form question about ‘other improvements’. This is the way in which Government should work – seeking a variety of views and comparing and contrasting them. Those of you who are, like me, old enough to remember the ‘green bricks’ – the thick green papers that informed the development of the Companies Act 2006 − will be familiar with this model.
But the tricky bit that comes with it is that we have to make our case. And, let us be clear, others will be making theirs and not always from a position of knowledge or understanding. Indeed, some responses will be the product of simple prejudice.
Company secretaries, through their position at the heart of a company and from their presence in the boardroom, know better than most what actually happens and will be better placed to make constructive suggestions for improvement where necessary and for the retention of the status quo where it is not.
Back in the period leading up to the 2006 Act, we tried to make our case for the retention of the requirement for a company secretary in all companies but, for a variety of reasons, were unsuccessful in so doing. In our response to the green paper, we will again be asking for your support, both in terms of what we should say and how we say it – please contact us with your feedback.
This is a great opportunity – perhaps not a once in a lifetime one, but certainly the first since the discussions around the 2006 Act – for chartered secretaries as the governance professionals to have an influence on the legal structure surrounding what we do. Let us not miss the tide.