So now we know the election result. In two recent technical briefings we have outlined the manifesto commitments of the parties campaigning for our votes, and now we can consider which of those commitments we can expect to see the new government carry forward in the Queen’s speech later this week and, just as interestingly, which of the proposals suggested by other parties might attract interest.
Probably the main governance-related commitment in the Conservative manifesto is the intention to reform insolvency rules to provide customers and suppliers with more protection, and to legislate to protect the assets in company pension schemes. No details are provided, but this presumably means that they would implement the proposals set out in the Government’s ‘Insolvency and Corporate Governance’ feedback statement in August 2018.
The highlights of this included a commitment to strengthen the insolvency framework in cases of major corporate failure and to create alternative procedures to support business rescue. Specific ideas mentioned were:
- taking forward measures to ensure greater accountability of directors in group companies when selling subsidiaries in distress
- legislating to enhance existing recovery powers of insolvency practitioners in relation to value extraction schemes
- legislating to give the Insolvency Service the necessary powers to investigate directors of dissolved companies when they are suspected of having acted in breach of their legal obligations
There were also a number of governance actions proposed:
- strengthen transparency requirements around complex group structures
- enhance the role of shareholder stewardship
- strengthen the UK’s framework in relation to dividend payments
- bring forward proposals to improve board-room effectiveness
The government undertook to consult further ‘where necessary’. It will be interesting to see how these proposals are carried forward and the Institute will continue to liaise with BEIS as they develop firm solutions.
The renewed focus on stakeholders was a feature of a number of manifestos and for several this was represented by proposals intended to give local communities a greater say in matters affecting them. For the Conservatives this was principally manifested through the idea of a Community Ownership Fund to support local takeovers of community assets. There was also a commitment to review the ‘fit and proper’ test for football club owners and to give supporters a greater say in the governance of clubs.
The Conservatives also made a commitment to continue their efforts to tackle excessive executive pay, but it seems likely that some of the more radical proposals from other parties, for example a maximum pay ratio between highest and lowest paid employees or a ban on any bonus exceeding the annual pay of the lowest paid worker, will not be put into effect. They also made a commitment, through the Red Tape Challenge, to ensure that regulation is sensible and proportionate, and that the needs of small businesses are considered when devising new rules. It will be good to see this working over the lifetime of this Parliament.
Board structure appeared in a number of manifestos, with commitments to increase diversity, particularly in terms of gender and to mandate employee directors. Climate change, sustainability and the concept of a general duty on companies relating to their impact on society and the environment also featured with, for example, proposals for statutory climate change related disclosures in companies’ annual reports and the introduction of a system of climate-friendly external auditing of firms. These are all hot topics and, although the government made no manifesto commitment in these regards, we may see further activity in this area.
Finally, there were some specific legislative proposals from other parties that may be worth the government considering adopting. For example, the Scottish National Party pledged to support moves to ensure that executive pension contributions are the same as for all workers in companies. This reflects the position taken by some of the larger institutional investors and may reflect developing market practice. The Scottish National Party also proposed reform of Companies House ‘to uncover the beneficial ownership of Scottish Limited Partnerships, other companies and trusts’, and the introduction of measures to improve the transparency of tax paid by international companies. Both these measures chime well with the previous government’s work on corporate transparency.
