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Corporate Governance Reform – strengthening the voice of stakeholders

Print publication

07/11/2017

In our September edition of Corporate Matters, we reported on the formal response published by the Department for Business, Energy and Industrial Strategy (BEIS) to the Government’s green paper on proposed reforms to corporate governance.

One of the key areas that we highlighted were proposals for greater employee and other stakeholder input at board level. Within the report, BEIS announced that secondary legislation would be introduced to require all companies of a significant size (probably more than 1,000 employees), both private and public, to explain how their directors comply with the requirement to consider the wider stakeholders when promoting the success of the company under section 172 of the Companies Act 2006.

The report also stated that the Government’s aim was to encourage industry-led solutions, one of which was to ask ICSA: The Governance Institute and the Investment Association to complete their joint guidance on practical ways in which companies can engage with their employees and other stakeholders at board level.

This new guidance has now been published and is available on the ICSA: the Governance Institute website. It contains ten key principles to guide the way boards approach stakeholder representation in the boardroom and includes information on how company boards can best attend to:

  • identifying key stakeholders;
  • the composition of the board and development of directors;
  • the way in which boards receive and process information;
  • designing appropriate engagement mechanisms;
  • reporting and feedback to shareholders and stakeholders.

At the launch Business Minister Margot James said “A crucial part of the [corporate governance] reforms is making sure companies listen to their workers and customers. This new industry-led guidance will help companies to choose how best to ensure those voices are heard in boardrooms up and down the country. This is an important piece of work and I would urge companies to draw on this guidance to help ensure their long-term success.

Chris Cummings, CEO, Investment Association, commented “Investors want companies to take decisions which will generate the best long-term value to their shareholders. To make such decisions, boards need to hear and take account of the views of their stakeholders. Failure to do so, could impact on the future success of the company. The guidance launched today, provides practical steps for UK companies to consider how they ensure their stakeholder voice is represented in the boardroom. It also outlines how companies report on their stakeholder engagement activities and the impact engagement has had on the board’s decision making.

WM comment

Companies to which the new corporate governance reforms apply, will need to consider this guidance for accounting periods starting from 1 June 2018. We will continue to monitor how this guidance from the Governance Institute and Investment Association is put into practical effect and report again in the new year with any developments of best practice.

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