Strategy & Operations » Governance » IoD backs Theresa May’s plan to shake-up corporate governance

THERESA MAY’S pledge to reform boardroom governance in the UK and rebuild trust in big business has received tentative support from the Institute of Directors.

The measures, announced by the incoming prime minister moments before her rival, Andrea Leadsom, pulled out of the leadership race, include plans to put employee and consumer representatives on company boards and place tighter controls on executive pay.

Launching her leadership campaign, May called for businesses to be made more accountable and expressed discontent with the effectiveness of non-executive directors who, in practice, “are often drawn from the same narrow social and professional circles as the executive team”.

“The scrutiny they provide is often limited,” she said. “If I’m prime minister…we’re going to have not just consumers represented on company boards, but workers as well.”

Oliver Parry, head of corporate governance at the IoD, said: “Placing workers on boards can bring benefits in terms of better employee engagement, and we would urge companies to consider doing so, although we would stop short of making it compulsory for firms.”

May also announced that annual shareholder votes on corporate pay packages should be binding instead of advisory and simplify the way bonuses are paid so that executive’s incentives are better aligned with the long term interests of the company.

The announcement follows a series of shareholder revolts against high pay earlier this year, including BP, Anglo American and Smith & Nephew.

“Theresa May has suggested some bold solutions, and the details will need to considered carefully, but the IoD agrees it is time to give shareholders more control over executive pay,” said Parry, head of corporate governance at the IoD.

The measures would go further than the changes introduced by former business secretary Vince Cable, which handed shareholders greater power over companies’ executive pay policies by forcing companies to hold a binding vote on prospective pay policy at least once every three years, and an annual advisory vote on the annual report on remuneration.