19 October 2016

The high profile inquiries into failings in BHS and Sports Direct have ensured that corporate governance has never been far from the headlines in recent months. In July, Theresa May committed to reform "big business" corporate governance, with proposals including employee representation on company boards and binding annual shareholder votes on executive pay. More details on these Government proposals are expected before Christmas.

The Business, Innovation and Skills Select Committee has also launched an inquiry into corporate governance. The inquiry will review three key areas of corporate governance: directors' duties, executive pay and board composition. The Committee has a wide-ranging remit and asks for views on a number of broad questions, including on the issues set out below. It is likely that the outcome of the inquiry will have some influence on the imminent Government proposals.

Directors' duties

  • How are the interests of shareholders, current and former employees best balanced?
  • Should there be greater alignment between the rules governing public and private companies? (BHS was a private company and not subject to the UK Corporate Governance Code.)
  • Is the directors' duty to promote the long-term success of the company clear and enforceable?
  • Is the law sufficiently clear on the role of directors and non-executive directors?
  • How best should board decisions be scrutinised and open to challenge?

Executive pay

  • How should executive pay take account of a company's long-term performance?
  • Should executive pay reflect the value added by executives relative to more junior employees?
  • Should the Government seek to influence or control executive pay?
  • Should shareholders have a greater role? (Under Theresa May's big business reform proposals, shareholders would be given annual binding votes on executive pay.)

Board composition

  • How should greater diversity be achieved?
  • Should there be worker representation on boards and/or remuneration committees? If so, what form should this take? (Another item on Theresa May's big business reform agenda, worker representation is already an ingrained feature of boards in many EU countries.)

The full list of the inquiry questions can be found on the Committee's website. The Committee has asked for written submissions by 26 October 2016.

Key contact

Nick Graves

Nick Graves Partner

  • Head of Corporate
  • Corporate Advice
  • Mergers and Acquisitions

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