Lord Bilimoria responded to the statement repeated by Lord Henley on behalf of the Minister for Business. He expresses concern a proposed measures which risk “tarring” good companies with the same brush as bad ones. He also asks that the Minister acknowledge that disclosing workers pay is not as simple as disclosing ratios.

Corporate Governance

29 November 2016

Statement: Lord Henley 

My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy in another place. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement about the Government’s corporate governance Green Paper which was published earlier today.

Successful businesses are the backbone of our society. They are the reason why we are the fifth largest economy in the world. They create employment opportunities, and they contribute significantly to funding our country’s public services. There are many reasons why we are a reliable place to do business: our legal system and our framework of company law have long been admired around the world. This Government are proud of our thriving industries, and we want to build on these strengths and enhance our competitiveness even further.

One of our biggest strengths is our record on corporate governance, which is already highly regarded around the world, especially for its combination of flexibility and high standards. But despite this record, our strong reputation can be maintained only if government and business regularly review and upgrade those standards. We want to guarantee not only that Britain is an excellent place to do business, but that it is also where business is done best.

I am privileged, in my position as Secretary of State, to meet regularly not only those who run successful businesses, but their employees and customers, too. I have spoken with company heads about how their corporate governance is an integral part of their success. It inspires confidence among investors, loyalty among employees and trust among customers. Ordinary working people who work hard for their living deserve to have confidence that businesses act responsibly and fairly. When an individual business or businesses lose the confidence of the public, faith in business generally diminishes, to the detriment of us all.

There is no conflict between good corporate governance and profitability: indeed, poor corporate governance is usually the prelude to financial disaster. This Government are unequivocally and unashamedly pro-business, but in doing so we hold business to a high standard. It is right to ask business to play its part in building an economy that works for everyone. Over the last few years, there have been a number of proposals, from both the Government and those representing business, to update our corporate governance framework. In some cases these have been made in response to concerns about the actions of a very small number of businesses which have undermined the reputation of British business generally, whose standards are among the highest in the world. Today, we have launched a discussion paper on how corporate governance could be reformed. I will be placing a copy of the Green Paper in the Libraries of the House.

The paper considers three aspects. First, it asks for opinions on shareholder influence on executive pay. Members of the House will be aware that executive pay has grown much faster over the last two decades than pay generally and at times is not in line with corporate performance. The document seeks views on this issue, and in particular on strengthening shareholder voting rights with a view to making them binding, encouraging shareholder engagement with executive pay and promoting greater transparency over pay.

Secondly, the document asks whether there are measures that could increase the connection between boards of directors and employees and customers. It asks whether the establishment of advisory panels and the appointment of designated non-executive directors to take formal responsibility for articulating employee, customer and other perspectives is the right way forward. But we are not prescribing how this should be done; it would be whatever is most appropriate for their business.

Thirdly, our discussion paper asks for views on whether some of the features of corporate governance that have served us well in our listed companies should be extended to the largest privately held companies.

These are issues which are about competitiveness, and creating the right conditions for investment, as much as they are issues about fairness. This Green Paper is designed to frame this discussion so that we can move quickly to consider which changes are appropriate at this time. We want to hear from as many people as possible about how best we can increase confidence in big business and achieve better outcomes for our economy. This does not mean the imposition of regulation when other avenues are open. One of the strengths of our system of corporate governance has been the use of non-legislative standards adopted by business itself.

We are determined to make Britain one of the best places in the world to work and to carry out business. This review will help us achieve that aim, and the views of businesses, investors, employees, consumers and others with an interest in successful business are warmly welcomed. I commend the Statement to the House”.

My Lords, that concludes the Statement.

Lord Bilimoria:

My Lords, it was argued that the regulation we had before the financial crisis was light touch and should have been the right touch. On the other hand, with corporate governance, starting with Cadbury, Greenbury and Hampel and leading to the combined code and Higgs, the UK is respected around the world for our excellent governance, which is principle based. But some of the rhetoric that came from the Prime Minister and the Home Secretary at the Conservative Party conference appeared to be anti-business in terms of tarring all business with the same brush as some of the bad eggs that sadly exist. Surely we should be working towards increasing our principles-based corporate governance system and increasing transparency. When it comes to disclosing workers’ pay, will the Minister acknowledge that it is not as simple as disclosing ratios, because the ratio between the chief executive and the lowest paid in a supermarket is very different from that in an investment bank. The original reason for the Cadbury code was that companies faced with minimum standards in law would just comply with the law and not the spirit of the rules.

Comments are closed.

Post Navigation