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MPs launch corporate governance inquiry

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MPs have launched an inquiry on corporate governance, focusing on executive pay, directors’ duties, and the composition of boardrooms, including worker representation and gender balance in executive positions.

The Business, Innovation, and Skills (BIS) Committee inquiry follows on from the corporate governance failings highlighted by recent inquiries into BHS and Sports Direct, and in the wake of commitments from the prime minister to overhaul corporate governance.

“Irresponsible business behaviour and poor corporate governance ill serves workers, but it also tarnishes the reputation of business and undermines public trust in enterprise. We need to look again at the laws that govern business and how they are enforced,” said Iain Wright, chair of the BIS committee.

The BIS Committee wants to examine whether executive pay should take account of companies’ long-term performance. The committee is to explore whether executive pay should reflect the value added by executives relative to junior employees. The inquiry will also look at whether recent high-profile shareholder actions suggest the current framework is working or whether shareholders need a greater role.

The inquiry will examine whether company law is sufficiently clear on the role of directors and non-executive directors and look at how the interests of shareholders and employees are best balanced and whether there exists an effective voice and challenge to boardroom decisions

Following the Davies Review, which successfully focussed on increasing the number of non-executive directors, the BIS committee wants to examine what more should be done to increase the number of women in executive positions. It also wants to explore proposals on worker representation on boards and remuneration committees.

“The prime minister has spoken of workers’ representation on boards. We want to examine what this might look like in practice, how would this work, how would workers be selected? It’s all too clear that there is significant under-representation of women in executive levels. We’re interested in hearing about the barriers to women achieving senior positions, the measures being taken to remedy the situation, and what action government might take to improve the gender balance,” said Wright.

“Whopping pay awards to senior executives are not only vastly bigger than workers could ever expect to receive but often seem to have very little relationship to company performance. As a Committee, we will want to look at whether executive pay should take account of companies’ long-term performance and whether the Government should intervene to control executive pay,” he added.

The committee has asked for written submissions by Wednesday 26 October 2016.

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