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The signatories to this letter will be responding individually to the recent corporate governance Green Paper, setting out their own particular priorities. However, they are united in their recognition of the importance of Section 172 of the Companies Act. This requires directors to promote the success of the company for the benefit of shareholders, and in so doing to have regard for the interests of workers, consumers and other stakeholders. However, there is no effective mechanism for policing this law, which means that if companies--particularly private companies where there is little or no institutional shareholder oversight -- do abuse the law, they are not always held to account. This gap in British governance system has allowed the poor practice of some to undermine people’s trust and confidence. Filling that gap need not result in undue constraint, or costly legal action. In other walks of life, a regulator exists to whom the aggrieved can make complaint, and have that complaint adjudicated. Establishing a similar regime for companies would deliver economic benefits, as well as greater fairness1, and the signatories note the evidence that those companies which do find ways to incorporate stakeholder views also tend to be more successful in terms of their financial performance. As bodies representing international investors, professional directors, governance professionals and workers, they will each be making more specific responses to the Green Paper. However, as a united voice at a very minimum, they would urge Mrs May to:
- Create a mechanism which allows those whose interests should supposedly be protected by the law, to make complaint and find an appropriate remedy.
- Ensure investors and stakeholders are involved in the governance of that mechanism.
- Strongly encourage, or mandate larger private companies to apply the principles of independence and transparency which have worked for public companies.
- Help encourage frameworks for executive pay which are more broadly acceptable, and recognise that it, like other aspects of corporate governance will require a long-term focus, by directors, investors, stakeholders and government.
The government on behalf of the people of Britain needs to ensure this debate is never shelved. Good corporate governance is a necessary condition for any economy which both works, and is seen to work for everyone.