UK Corporate Governance Reforms Drop Plan to Put Workers on Boards

UK Corporate Governance Reforms Drop Plan to Put Workers on Boards

A suite of corporate governance reforms proposed by the UK government will not require companies to have employee representatives on their boards after all. A slimmed-down version of the proposed revisions to the UK Corporate Governance Code, just issued by the Financial Reporting Council, instead proposes to require “the adoption, on a ‘comply or explain’ basis, of one of three employee engagement mechanisms”: a director appointed from the workforce, a formal workforce advisory council, or a designated non-executive director.

The revisions will not mandate direct employee representation on boards, as Prime Minister Theresa May had briefly suggested last year, but will start putting pressure on organizations to devise their own ways of making employees’ voices heard in the boardroom. This will give businesses the flexibility to design the right solution for their organization, Rob Moss reports at Personnel Today:

Peter Cheese, chief executive of the CIPD, said: “This is a significant step forward in recognising the value of the workforce and the need for its voice to be heard at board level. The FRC rightly recognises that in order to drive sustainable culture change and build trust in business, boards must focus more on values, behaviours and a wider stakeholder voice beyond that of shareholders, with particular attention to the voice of the workforce.”

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How HR Can Strengthen Corporate Governance in a Time of Constant Change

How HR Can Strengthen Corporate Governance in a Time of Constant Change

At the CEB ReimagineHR summit in Washington, DC, on Wednesday, dozens of heads of HR and other HR leaders participated in a discussion with a panel of experts on the changing nature of corporate governance and its impact on HR executives. The panelists included Holly Gregory, partner and co-chair at Sidley Austin, LLP; Dan Kaplan, managing partner at Heidrick & Struggles; and Lori Zyskowski, partner at Gibson, Dunn, & Crutcher LLP.

The panelists brought a wide range of experience in advising heads of HR, CEOs, and boards of directors, as well as developing corporate governance in-house and advising externally on both good governance and governance crisis situations. The panelists shared some of the common concerns that are keeping board members and CEOs awake at night. Here are some of the key points from Wednesday’s discussion:

Boards Face Anxiety Over the Issues They Don’t Know Exist

In a challenging environment of disruption, expanded scrutiny, and higher expectations from society, boards need to ask the question, “What don’t we know?” Hidden patterns of employee misconduct, a body of claims around harassment, or compliance issues all represent a failure of corporate governance.

Heads of HR help boards by creating an information system that methodically elevates issues to the board. CHROs have their fingers on the pulse of the company and are involved in employee misconduct, issues with supervisors, harassment claims, etc. It is critical that these issues be surfaced, and CHROs that are not getting traction with their organization’s general counsel when these issues arise need to show courage in escalating them to the CEO or the remuneration or audit committees on the board.

The Speed at Which Governance Crises Emerge Has Accelerated

Boards don’t have as much time to respond to problems as they used to. In an era of viral media, an organization’s customers, investors, and competitors often find out about crises before the Board does. With no time to plan a reaction, it is critical that boards have the information they need and that the organization is able to respond rapidly. That means heads of HR need to develop teams that can quickly pivot and adjust the way things operate in the company.

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UK Plans to ‘Name and Shame’ Companies Whose Investors Object to Executive Pay

UK Plans to ‘Name and Shame’ Companies Whose Investors Object to Executive Pay

As part of a suite of corporate governance reforms aimed at reining in excessive executive pay packages and giving employees a greater voice in corporate decision making, this week the UK government is expected to propose establishing a new public register that would list all companies where investors have opposed directors’ compensation plans, Sky News reports:

Sky News has learnt that Business Secretary Greg Clark will announce that the Investment Association – the fund managers’ trade body – is to oversee the creation of the new register, which will include any company which faces opposition from at least 20% of shareholders.

New laws will also pave the way for nearly 1,000 listed companies to publish and justify the ratio between the pay of their chief executive and their average UK-based worker, according to a Whitehall source briefed on the plans. It was unclear whether the figure for chief executives would comprise their total remuneration – which in the FTSE-100 averaged £4.5m last year – or only their base salary, which would produce a much lower ratio.

The government’s assertive approach to “naming and shaming” organizations that allegedly overpay their executives follows from the populist position Prime Minister Theresa May has staked out since taking up residence at 10 Downing Street last year, in the aftermath of the Brexit referendum.

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