New Corporate Governance Code – It Could Be Improved

I commented briefly earlier on the public consultation on a new UK Corporate Governance Code (see here: https://roliscon.blog/2017/12/05/new-corporate-governance-code/ ). I have now submitted a detailed response to the public consultation which you can read here: http://www.roliscon.com/Roliscon-Response-Corporate-Governance-Code.pdf

The main points I made therein are:

  1. I supported the inclusion of Chairmen in the 9-year rule after which they are no longer considered independent. But I think that period should also apply to tenure to avoid directors sticking around for too long.
  2. I am concerned about the wording that promotes diversity of gender, social and economic backgrounds in new board appointments. It appears to conflict with the requirement in law not to show any bias in selection (and quite rightly). Positive discrimination is as just as illegal as negative discrimination.
  3. I doubt that appointing a non-executive director to engage with the workface would be nearly as effective as the other two suggested methods of improving engagement.
  4. I question the approach to executive remuneration. It still does not discourage aggressive bonus schemes such as LTIPs and the ability of boards to retrospectively review awards (e.g. when the pay-outs turn out to be excessive) I consider to be quite unlikely to be effective in practice. The changes in this area are unlikely to stop the ramping up of pay levels to excessive levels.
  5. It perpetuates the myth that when companies need to engage with shareholders they can simply contact a “few major shareholders” to get their views. This does not work in most public companies nowadays because of the very diverse shareholder base, and also ignores all the private shareholders who could be the largest bloc. It should have proposed a more formal process such as a Shareholder Committee and disclosure on who has been consulted.
  6. It does not introduce restrictions on the appointment of directors with no knowledge of the sector in which the company operates. It perpetuates the English preference for “amateurs” versus “professionals”, i.e. assumes those who know less might be wiser.
  7. Likewise, it does not impose restrictions on the number of roles that directors should have.

In summary there are some improvements in the new Code, but more could have been done to improve the Governance of companies and toughen up the Code. Although I do not object to the principle of “comply or explain”, as there are always exceptions that justify some anomalies, I suggest there should be a requirement to provide more specific justifications for such exceptions. The excuses we get at present are often way too weak.

Readers are welcome to submit their own responses to the consultation. The more they receive from individual shareholders, the better. Feel free to “copy and paste” from my own submission.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s