The inquiry follows high profile corporate governance failures such as at BHS, and serious failings at Sports Direct.
What will the inquiry consider?
Executive Pay: should executive pay take into account companies’ long-term performance? This will be considered by the Committee, along with whether such pay should reflect the value added by executives relative to junior employees. It will also look at the interests of shareholders.
Directors’ Duties: is company law sufficiently clear on directors’ roles (including non-executive directors)? The committee will consider this issue, and whether there is an ‘effective voice and challenge’ to decisions made in the boardroom. It will also consider whether the Cadbury report provisions have been incorporated into business practice and culture – and how shareholders and the public could have more confidence in the independent challenge to which company executives are subject.
Composition of Boards: can more be done to increase the number of women in executive positions? Proposals on worker representation on boards and remuneration committees will also be explored by the Committee.
The inquiry follows the failings in corporate governance highlighted recently by the BIS Committee’s recent inquiries into BHS and Sports Direct. On the launch of the inquiry, the Committee’s chair Iain Wright MP said: “We need to look again at the laws that govern business and how they are enforced. Good corporate governance shouldn’t be a hindrance to business; it can contribute to companies’ long-term prosperity and performance as well as showing to the world that a business is transparent, accountable and responsible.”
What does this mean for us?
Executive pay and directors’ duties are falling firmly under the Government’s spotlight. This means companies need to act now to get their house in order, ensuring their corporate governance is robust and senior executives are not receiving unreasonably high pay packets. Take expert advice from experienced corporate solicitors if necessary.
Companies can also play an active role: the Committee is requesting submissions until 26 October 2016. For the full Inquiry’s Terms of Reference, visit the Parliament website.
How can we help?
We provide businesses with expert advice on corporate governance and related company and commercial law issues. If you have any concerns about your corporate obligations, and if you would like further information about the BIS inquiry, please contact the experienced corporate and commercial solicitors at Herrington Carmichael for specialist advice.
Please contact Yavan Brar or Michelle Lamberth on 0118 977 4045