Our Corporate Governance Expert Group, with contributions from our Financial Reporting and Share Schemes Expert Groups, contributed to our response to the BEIS Green Paper on corporate governance reform.
We commented that effective corporate governance encourages sustainable long-term value creation, protects value and supports the interests of wider stakeholders.
We noted that the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies has been in place for over twenty years and is specifically designed to enable quoted companies at different stages of development and of different sizes to adopt good corporate governance practice.
As a general comment, we noted that any measures deemed appropriate for the largest companies will not necessarily be so for smaller companies. Such a one-size-fits-all approach may lead to added administrative burden with no clear benefit. We commented that smaller companies need to be treated differently and disclosure requirements need to be carefully crafted if policymakers want growth companies on the Main Market to continue to grow and create jobs.
Regarding executive pay, we commented that the strengthening the UK Code to provide specificity on how companies should engage with shareholders on pay, including where there is opposition to a remuneration report, could enable shareholders to more effectively hold companies to account on executive pay and performance. Nonetheless, we encouraged caution when making changes to the UK Code, so that the appropriate balance between addressing remuneration and other areas corporate governance remains.
Regarding encouraging institutional and retail investors to make full use of their voting powers on pay, we noted that although a number of commentators have supported the shareholder committee approach, it was relatively underdeveloped in practice. We suggested that such an approach should only be progressed once a thorough examination of data, as to whether shareholder committees would add to shareholders' ability to maximise their stewardship powers has been carried out.
We commented that introducing a legislative requirement for companies to publish pay ratios would exert an administrative burden on small and mid-size quoted companies – both in terms of time and cost. We noted that, as there is no evidence of systemic high executive pay within small and mid-size quoted companies, these companies should not be required to publish pay ratios.
Regarding potential measures to strengthen the stakeholder voice, we commented that any steps taken should be proportionate with a company’s size. We recommended that only companies with a market capitalisation commensurate with companies within the FTSE 350 should be included in any action taken. If an employee number test is applied, then only companies with no fewer than 750 employees should be included.
We encouraged the Government to to reassess and align the criteria for non-financial reporting requirements, such as those regarding modern slavery and the gender pay gap. We added that these requirements should proportionate to a company's size, stage of development,sphere of operations, legal form and the market upon which shares are traded (if any).
