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Theresa May's Plans for Corporate Governance Reform

Theresa May was confirmed as Prime Minister after David Cameron resigned in the wake of the Brexit vote, and after her competitor for the title stepped down – but what does this mean for UK company law?

The newly appointed Prime Minister made a bold pledge to combat “corporate irresponsibility” during her final campaign speech, but what exactly is she promising? May clearly outlined the ways in which she believes UK corporate governance should be reformed in terms of how organisations are run, how staff are remunerated, and also methods for increasing transparency.

This post looks at some of the ways Theresa May wants to reform the way companies in the UK operate.

More Regular Binding Votes on Pay

One of the main changes May wishes to introduce is to ensure that more regular, and also binding votes on remuneration are held. At present, votes are held every three years, but it is widely held that is is not frequent enough.

Head of public policy at UKSIF, Fergus Moffatt, is pleased about May’s commitment to more binding votes, however, he believes it will also be important to ensure the law works in practice, and is supported by business. He said:

 “It will be crucial to see what the policy is – and to see it fleshed out in more detail, to be put to public consultation with investors, business and civil society,”

Companies to Publish Pay Ratios

May has also highlighted the need for greater transparency when it comes to pay. This policy comes in the form of requiring companies to publish pay ratios, between the highest executives and average workers. This is not a new suggestion, both UK unions and the Local Authority Pension Fund forum have long asked that UK companies disclose pay ratios. At present, France’s civil service pension fund oppose any packages where remuneration for executives is 50 times higher than the median pay for employees.

Changes to Board Composition

The new Prime Minister has also outlined intentions to change the composition of corporate boards. May argues that boards should include members that represent employees as well as those which represent consumers. This practice has been long established in Germany and Scandinavian countries.

Stakeholder Inclusion

Furthermore, May has made criticisms of “transient shareholders”, apparently referring to the role of asset managers in mergers and acquisitions, pointing out that it is not only shareholders who are affected by such decisions and actions.

It will be interesting to see which of these reforms are introduced and how they will be met by business professionals. We will be keeping up to date with all potential reforms relevant to our clients, so keep an eye on our blog for further updates.

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