What is it about luxury yachts that seems to get policy-makers so worked up?
The UK’s Corporate Governance Code will be 25 years old next year and it’s worth reflecting on why it came into existence. It was the collapse of Robert Maxwell’s business empire that led to the first Cadbury Code, which has evolved over the past few decades into the Code we have today.
Maxwell’s company was around 70 per cent owned by his family, so acted rather like a private company despite the 30 per cent of equity that was held in “listed” hands. And all that as the bouncing Czech dominated the firm and robbed the pension fund to prop up the business, before it all came tumbling down and he tumbled off the back of his yacht.
Right now a new government has a new mantra for perhaps what it sees as not so different times. To repeat it: a country that works for everyone not just those at the top. So time for some radical plans for change.
Already there has been a lot of shaking of heads before we have even seen the government’s proposals on how executive pay and company management should be reformed. That’s the very nature of politics and news these days. Let’s trash something before we even know the outcome. But from what I can see, there are some important debates to be had right now and the proposals are just that – proposals for change.
Like it or not, pay is right at the centre of politics as a result of poor behaviour, and that’s why I applaud – in particular – any moves to empower shareholders to reward or not.
But more importantly for me, at the heart of these reforms must be amending Section 172 of the Companies Act. This is vital in that it was designed to spell out to directors their duties to shareholders and other stakeholders including employees. The government’s Green Paper should provide greater clarity on how directors can fulfil these requirements. That must be seen as a step forward because little has been done to enforce it.
Work from both the Financial Reporting Council and Institute of Business Ethics has been crucial here. There is a real sense from responsible business – the vast majority of private enterprise – that we want to do the right thing. And that’s both public and private companies.
While there is a balance to be struck between tightening corporate governance for listed companies and not overburdening them with Brexit looming, there is a very strong case for major private companies to be held to account in the same ways as Plcs. In fact many of the current headlines of poor corporate behaviour have come from organisations which are only too happy to quack like a Plc in most forms.
Governance reform does not just stop at pay. Even many smaller SMEs are trying their hardest to ensure their boardrooms reflect modern Britain. That’s why the work by Sir Philip Hampton and Dame Helen Alexander on gender remains so important and the Parker review on ethnic diversity on boards is a key part of this debate. It is why work by groups such as OUTStanding to make more LGBT people board-ready must be joined in here too.
UK corporate governance has served the UK stock market well by encouraging investors to place capital in UK-listed companies and therefore encouraging businesses to list in the UK. We don’t want to turn off that tap nor dissuade companies from listing or remaining listed in the UK, especially as we prepare to make Britain the best place in the world to do business.
To my mind, business has been getting itself wrongfooted for some time. For those of us who believe in markets, there has never been a stronger need to deeply connect commerce to consumers.
So those at the top working for the country then?