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Corporate Governance

Volume 797: debated on Monday 29 April 2019


Asked by

To ask Her Majesty’s Government what steps they are taking to raise public confidence in, and support for, business and industry through better corporate governance.

My Lords, we have reformed our corporate governance framework to make businesses more open and accountable. A revised UK corporate governance code gives employees a stronger voice in the boardroom and new legislation requires companies to report on their executive pay ratios.

My Lords, we are all aware of the declining confidence in companies, particularly those delivering public goods and services, such as Carillion. Care homes are going bust and the probation service is in crisis at the moment. Led by Tomorrow’s Company—I declare an interest—thought has been given as to how we might restore public confidence in the trustworthiness of such companies. The proposal is that the Government should support the use of a British standard for the corporate governance of companies delivering these goods and services, in the same way that British standards enable us to trust public transport and health services.

I am confident that British standard 95009 will be published next month. My question to the Minister is this—

Will the Government insist that companies delivering products and services to the public must satisfy this British standard, and that procurement bodies must also abide by it?

My Lords, I agree with the noble Lord that public trust in companies and their governance is very important. I assure him that, according to the most recent survey, levels of public confidence are increasing rather than decreasing, as he put it. I am also aware of the work being done by the British Standards Institution in developing two new specifications on sustainable investment management and sustainable finance. It is premature to say whether the Government should expect suppliers to comply but we will obviously consider it carefully in due course.

My Lords, the noble Baroness asks a difficult philosophical question. It is important to try to maintain public trust. In my response to the noble Lord, Lord Haskel, I tried to make it clear that we have seen some increase in it, but we also think it important—hence the work of the FRC and others on the UK corporate governance code—to make sure that we have an appropriate code so that companies can operate in a proper manner.

My Lords, the Minister has talked about openness. I know that the CMA has reported back on the auditing business and I would not expect him to comment on the Government’s response to that yet unless he wishes to do so. Does he agree that business reputation is not in the hands of the auditors? It is the responsibility of company owners, their boards and their managers. I am not sure where the noble Lord is getting his data on trust because there is a crisis of trust between society and big business. If he does not recognise that, he is missing something. What measures are the Government considering taking in order to hold company shareholders, boards and managers to their wider responsibilities to society?

I agree with the noble Lord on the first part of his question, which is that this is a matter for companies, and it is right that they should get it right. On levels of trust, what I have been trying to make clear is that we have seen a growth in public trust in business. It is still too low, but the most recent 2019 Edelman global trust barometer shows a small increase, which is to be welcomed and something we would encourage. As the noble Lord says, it is too early for me to comment on the CMA.

My Lords, I am glad to hear my noble friend’s comments about trust, but could more be done to enforce the existing rules of corporate law? There is a problem in that the bad eggs give business a very bad name, so good enforcement early on of the right kind, led strongly by the FRC, can be extremely helpful. Does my noble friend agree?

My Lords, I do agree with my noble friend. I think that she will agree that we have done a great deal on corporate governance ever since we published the Green Paper in 2016, and there is the work done by the FRC and others right up to publishing and bringing into operation the new code in January of this year.

My Lords, our failure in corporate governance has enabled the City of London to consign many of our utilities and industries to foreign ownership. Are the Government doing anything to staunch this haemorrhage?

My Lords, I did not say that there has been a failure in corporate governance, rather that it is right that the Government should be doing what they have been doing; hence the work of the FRC on the corporate governance code and the work instituted by the Government when we published our Green Paper back in 2016, for example.

My Lords, surely the issue here is not philosophical but political. There is a huge gap in the Government’s legislative programme at the moment and plenty of time to fill it. Since the Green Paper of 2016 the Government have been promising to do something about corporate governance but we have yet to see the detail. For example, when are we going to get the full result of the words spoken by the Prime Minister on the steps of Downing Street when she enthused about workers on boards? These things are important but they have never been acted on; it is about time that they were.

My Lords, we have made clear our views about workers on boards. The FRC has also made clear in its revised code that it requires boards to have in place at least one director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. We do not think it is right to go ahead with what the noble Lord is suggesting, and we have made that quite clear from the start. It is a matter for companies to decide what is appropriate.

My Lords, does the Minister agree that management is the key issue when it comes to small businesses? I left school and went into a company that was run on the lines of “them and us” rather than the co-operative company it is now. It is owned by the employees. Good management is the key issue here.

My Lords, I agree with the noble Lord that good management is obviously the issue. Whether good management should go down the route that he seems to be suggesting—I was not quite clear about employee share ownership—I do not know. However, it should be a matter for companies themselves to decide.