Publication Promoting long-term wealth: reshaping corporate governance

Executive Summary

Radical change in the boardroom is needed to restore the public’s trust in business and to tackle attitudes of short-termism. This report, commissioned by the All-Party Parliamentary Corporate Governance Group (APPCGG) stresses that the answer to low public trust, productivity and growth is the same: encouraging and supporting companies to deploy capital in pursuit of a purpose that benefits society and shareholders.

The government should concentrate on positively supporting and encouraging companies to create sustainable wealth for shareholders and society, rather than only focus on executive pay and the few bad apples that make the headlines.

We focused on three areas in this report: the provision of long-term patient capital; increasing the voice of all stakeholders in the boardroom; and allocating more time for non-executive directors to understand issues and make more effective decisions.  Under the three headings, we suggest six specific policy recommendations:

• Long-term capital trusts (LTCTs) – the creation of a new tax-efficient investment trust structure that has a mandate to support UK economic growth by being an engaged stewardship investor in UK companies
• Stewardship stake designation – a new framework providing shareholders in UK companies the ability to designate a specific stake as a stewardship stake
• Expanded and strengthened Stewardship Code – the expansion of the Stewardship Code to cover the role played by different actors throughout the investment chain, covering asset owners, investment consultants and companies, in addition to asset managers.
• Stakeholder advisory panel – requiring companies above a certain size to introduce a stakeholder advisory panel that has a mandate to provide the board with the stakeholders’ view on long-term success, and challenge the board on the wider duties within Section 172
• Broaden the remit of the remuneration committee – broadening the remint of the remuneration committee to include the pay, incentives and conditions of all employees.
• Clearing the clutter from boardrooms – move away from a long list of provisions in the Governance Code with a ‘comply or explain’ requirement, towards a shorter list of principles with an ‘apply and explain’ requirement.

The report is in the process of being debated amongst members and supporters of the All-Party Group and a number of its recommendations will form the basis of the committee’s submission to the Government’s green paper on corporate governance.

Comments:

Laurie Fitzjohn-Sykes, director of research at Tomorrow’s Company: “Continually updating how our companies are owned and governed is critical to creating wealth in these uncertain times. We need a government framework that builds on best practice rather than focusing on poor behaviour.  These recommendations will, we believe, help to restore the public’s faith in business and support the long term, sustainable wealth creation that this country needs.”

Jonathan Djanogly MP, Chairman of the APPCGG: “We welcome the report and thank Tomorrow’s Company for this valuable input into the work of our All Party Group.  It contains many interesting and radical ideas and we look forward to discussing them both as a parliamentary group, and with our supporters and members.

“It is hugely important that, as a country, we get this right.  We want to encourage best practice and create the environment in which wealth creation can flourish. We don’t want to over-burden business with unnecessary regulation but we do want to be sure that all in society can benefit.  What’s good for business must be good for society.”

Sir Vince Cable said of the report: “The model of corporate governance in the UK has been subject to growing criticism over excesses of corporate pay and lack of strategic, long term, investment decision making.  Some changes were introduced in the Coalition years but more needs to be done. Tomorrow’s Company are to be congratulated on some really creative, thoughtful, work on the practicalities of further reform”