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Corporate Governance

Volume 733: debated on Wednesday 7 December 2011


Asked By

To ask Her Majesty’s Government whether they will initiate a review of the structure of corporate governance in large United Kingdom companies, in the light of wider public and social interests in boardroom decisions.

My Lords, the Government are examining the responses to a recent discussion paper on corporate reporting, which includes proposals for clearer reporting of corporate social responsibility issues and on executive remuneration. Professor John Kay is due to publish his recommendations for encouraging more long-term behaviour in equity markets in the summer of 2012. In February this year, the Government welcomed the publication of proposals by the noble Lord, Lord Davies of Abersoch, for increasing the number of women on boards, and that work continues.

I thank the Minister for that reply, and I apologise for sounding like a frog—I do not mean one of those Frogs, or a Kraut. Do I get more time for all these interruptions?

I welcome the commitment by the Deputy Prime Minister at the weekend to curb the excesses of top boards of directors, whose pay is spiralling up as everyone else's spirals down. Will the Minister accept that the key option to restore confidence in the workforce and the wider society is—in Mr Clegg's words—to break open the closed shop of board remuneration by adding an employee representative? Secondly, does she agree that this test will be missed not by appointing a hand-picked favourite, which would make the whole exercise cosmetic, but by some mechanism whereby the person—he or she—self-evidently has the confidence of the whole workforce?

Some have said that remuneration committee membership as a whole does not come from a wide enough talent pool, that it stifles innovation and that the closed shop of boards and board committees needs to change. We know that diverse boards that bring a range of experience are more effective. The idea of introducing employee representatives may be one way of encouraging more challenge on pay. As I said, we have three consultations out at the moment, all of which report at various times leading up to the spring, so I hope that we will be able to give the noble Lord answers that he will find favourable at that time.

My Lords, there is in all quarters deep concern about the inequalities of pay in industry, which have increased dramatically in recent years. The Government could do something practical about that in this House. Will they seriously consider looking again at the schedule and the timetable for the Second Reading of the Bill of the noble Lord, Lord Gavron, which would give us an early opportunity to debate it? Will they also give it a fair wind, so that this Bill, in one form or another, can find early expression in the law and make quite a difference to the present situation?

I am sure that the usual channels will discuss the matter and we will come back to the noble Lord.

My Lords, given the mention of the Davies report and given a recent report which I read, which showed that women's contribution had increased UK GDP by a considerable percentage, can the Minister give us a clear idea of what steps she and the Government intend to take to speed up the process of implementing the Davies report?

The implementation of the Davies report is going ahead and things are improving, but we want to see what results can be achieved through a voluntary approach, and we are taking a very close interest in how much progress is being made. We want to encourage talent, but we want to avoid tokenism. I think that 89 per cent of the women whom the noble Lord, Lord Davies, spoke to said that they were not in favour of quotas, so we are trying to avoid getting to that stage if we can. There is no one-size-fits-all answer—companies need to be flexible in their operations. I should like to think that the women who are chosen to go on those boards are chosen because they are the right people for the job.

My Lords, does the noble Baroness accept that there are many lessons to be learnt from our neighbours across the North Sea in terms of rebalancing the economy, which is an objective of all of us? It seems to me that the Government have not yet accepted that one component of the success of these economies is that workers and other stakeholders have an influence at board level. What plans do the Government have to move in the direction of our successful North Sea neighbours?

So why do we not let employees have a say on pay? Some have said that remuneration committee membership as a whole—

On boards and pay, I shall refer back to my notes because we have three reviews going on at the moment. There are no noes on anything. At the moment we are keen to listen to everybody’s views and to look at progress anywhere else in the world. The UK has a strong corporate governance framework and we are committed to strengthening it further, as we should do. As it happens, this country has a good reputation in the world for running boards, although of course we will have to wait to see what Professor Kay says in his review.

My Lords, does the noble Baroness accept that there will be no long-term future for companies if there is not adequate shareholder engagement? To date, the level of that engagement has been shameful, allowing ownerless corporations to dictate and a managerial class to prevail. Does the Minister not agree that the Government should do something to ensure that we get both short-term and long-term engagement with shareholders, which is crucial for the long-term health of a company?

There is no doubt that shareholder engagement should—and, I hope, will—be improved. After all, it is shareholders who can, as is only right and proper, hold the company’s feet to the fire on the day they are asked to put up the salary of the chairman and the chief executive. They are not doing their job well, particularly the very big shareholders—the big pension funds and so on. I myself have sat on boards and have experienced these big shareholders not turning up at the shareholders’ meeting, instead having another meeting at another time. Usually, small shareholders turn up and make very good suggestions, but then in come the proxy votes—and there are millions of them. We are doing everything we can to see whether we can get shareholders to take the responsibility and the power that they have to put this right.

My Lords, can the Minister go a little further on shareholders and their involvement with boards? As we all know, the major shareholdings are held by big institutional investors—namely, pension funds—and the problem with that is that they never have taken their responsibility seriously enough. Instead of hammering on about worker representation and women’s representation, they ought to get right down to the bottom of the issue and find out what the responsibilities of these pension funds are.

My noble friend has expressed it extremely well. We would like to think that this will happen voluntarily, but in the mean time the Kay review is examining proposals for tackling potentially damaging short-term economic behaviour in the markets. We will also be looking at the actions of the shareholders and seeing what recommendations are made there.