Conservative corporate governance reform pledges omitted from legislative programme

The Queen's Speech, delivered to mark the state opening of parliament, made no mention of the proposals, which included requiring listed companies to ensure that the interests of their employees are represented at board level. There was also no mention of non-legislative measures to implement the policies, either in the speech or in its associated documentation.

"Some have interpreted these omissions as evidence that the proposals will not be pursued immediately," said executive remuneration expert Lynette Jacobs of Pinsent Masons, the law firm behind Out-Law.com. "That seems plausible, given the government's minority in the House of Commons and the expected parliamentary workload associated with Brexit."

"There is certainly scope, however, for at least some of the proposals to be pursued either by way of secondary legislation, for example by amending the detailed directors' remuneration reporting and policy regulations, or even parts of the 2006 Companies Act; through the proposed imminent FRC review of the UK Corporate Governance Code; or by way of investor pressure and companies' own initiatives. It seems likely that the government will clarify the position when it publishes its response to the consultation on its green paper on corporate governance reform, which might be expected to happen in the next month or two," she said.

The government published its 'green paper' on corporate governance reform towards the end of 2016. It sought views on issues including executive pay; strengthening employee, customer and other stakeholder 'voices' on the boards of listed companies; and enhanced corporate governance requirements for large private companies in a consultation exercise in response to the paper.

The Conservative Party manifesto contained a number of proposals aimed at encouraging listed company boards to "take account of the interests not just of shareholders but employees, suppliers and the wider community". These included various mechanisms to ensure that the interests of company employees are sufficiently represented at board level, and giving employees the right to request "information relating to the future direction of the company", subject to certain safeguards.

The manifesto also pledged a consultation on ways to strengthen the corporate governance of privately-owned businesses; as well as new commitments on executive pay, share buybacks and corporate takeovers. The party pledged to make executive pay packages subject to "strict annual votes" by shareholders, and to require listed companies to publish "the ratio of executive pay to broader UK workforce pay". It also said it would commission an "examination" of the use of share buybacks, with the intention of preventing their use "artificially to hit performance targets and inflate executive pay".

Remuneration expert Suzannah Crookes said that it would be "appropriate, and may be quite likely", for investors and companies to take forward some of the proposed reforms forward on a voluntary basis, or perhaps in response to future reforms of the UK Corporate Governance Code.

"Investor and corporate self-regulation has been favoured in this area to date and is, indeed, the approach that previous statutory reforms have aimed to bolster - for example, by introducing detailed remuneration reporting and policy requirements, and shareholder non-binding and binding approvals of remuneration and remuneration policy respectively. Notably, some FTSE companies including Rolls Royce have already voluntarily adopted one of the mechanisms that the Conservative manifesto proposed requiring companies to choose between, in order to 'strengthen employee voice' in the boardroom," she said.