Corporate Governance Reform – a view from the United Kingdom

Ison-Britannian uusi hallintokoodi tuo henkilöstön edustajan listayhtiöiden hallituksiin ja lisää johdon palkkatietojen julkisuutta.

Changes to the UK Corporate Governance Code, announced by the UK Department for Business, Energy & Industrial Strategy, are due to come into force by June 2018.

These reforms, developed following consultation with 250 organisations, cover:

  • Employee representation at board level for listed companies
  • Legislation for listed companies to disclose pay ratios between the CEO and workers (affecting about 900 companies)
  • A new public register publishing the names of listed companies with 20% shareholder opposition to executive pay packages

The growing proportion of private organisations will also be involved in developing a voluntary set of corporate governance principles for large private companies. This is smart, should forms of investment other than an IPO tempt them to remain beyond public scrutiny.

While the UK’s corporate governance system is much admired, the majority of Western European countries already have employee representation at board level; the UK leaves behind a small group without, notably Belgium, Italy and Switzerland.

In comparison with Finland, there was a distinct need to address the interests of employees, with collective bargaining coverage at 91% in Finland, compared with 29% in the UK, union membership at 74% in Finland and 26% in the UK (source: European Trade Union Institute.

Where the UK is being bold, and has not softened it’s original stance, is in pay ratios. In the United States, plans for pay ratios under Dodd-Frank legislation were put aside and an EU plan to force pay ratio disclosures was also dropped.

Transparency and accountability are essential and the UK is forging ahead on an uneven global playing field. However, agitation over CEO pay will be magnified and not necessarily helped by comparing different remuneration environments for say, Barclays and Sainsbury’s.

In today’s global economy, where every business decision is global, comparing CEO pay with ‘the average UK worker’ will be a minefield. Unless perhaps, it can turn employee representation into a two-way street, developing beyond group interest to the interests of the business. This would subsequently benefit the other little heard group, shareholders.

“Only connect,” says Margaret Schlegel in Forster’s Howards’ End. She longed for people to communicate beyond superficial barriers such as class, gender or could we pay grade? Forster was gripped by human connection and sympathy across barriers of prejudice.

Let’s not get caught in these barriers, but strive for worker engagement across the spectrum. We know ideas can come from anywhere, and we know C-suite roles involve complexities that saw CEO Antonio Horta-Osório take leave for his survival.

While some companies in Finland does have employee representation on the Boards, I would like to see worker representation as mandatory with employees having the right, through their representatives, to participate in the company’s key decisions. Making better decisions, with diversity of input, should be our focus.