The UK government should consider introducing a new ‘comply or explain’ requirement for businesses to assess the best route to improve employee representation on boards, according to the Confederation of British Industry (CBI), the UK’s biggest business group.
The CBI also says the government should introduce a binding vote on executive pay for companies that continually fail to satisfy shareholders with remuneration decisions.
In its response to the UK parliament’s Business, Energy and Industrial Strategy Select Committee inquiry into corporate governance, the business lobby group says companies should be required to publicly explain what steps they have taken to seek employee representation through a comply-or-explain approach.
Options the CBI suggests include placing an employee on the board, appointing a non-executive director with responsibility for representing staff views, and having an employee consultation committee. If employees do sit on company boards, it is critical, notes the CBI, that they have the same responsibilities and duties as all directors in order to maintain the British ‘unitary board’ model.
On executive pay, the CBI calls for new proposals to focus on tackling firms that persist in making payments shareholders regard as excessive or out of step with company performance. The CBI is seeking an escalation mechanism for companies where this has been the case.
Based on the principles adopted in Australia’s ‘two strikes’ system, shareholders would have the ability to issue one strike through the advisory vote, with a second strike being the binding vote. This recommendation would strengthen the 2013 reforms to the Directors’ Remuneration Report Regulations and would work with the current corporate governance system.
On employee representation, Paul Drechsler, CBI president, says: ‘Most companies have an excellent relationship with their employees and recognize that they are at the very core of their business success. Nevertheless, they are committed to continuously improving employee engagement, whether their staff are based just in the UK or across the globe.
‘Employees on boards is one option, but is not a silver bullet for all firms. There is no one-size-fits-all solution for giving staff greater influence, so individual companies must be able to determine the best way to effectively and transparently represent their voices. Whichever model is chosen, firms must be able to publicly explain the action they are taking to make their businesses more inclusive, engaged and productive.’
With regard to executive pay, he adds: ‘Where pay does not match performance, business leaders can appear detached from society and not committed to fairness and opportunity. This is an issue of the few, where business practice simply has not kept pace with public expectations and firms recognize that they must rise to the challenge.
‘Investors should rightly hold companies to account over exceptional pay for poor performance. And introducing a new, additional binding vote regime would focus attention on the most concerning cases, giving shareholders the teeth to truly have the final say on top bosses’ pay.’
