Asked by Lord Haskel To ask Her Majesty’s Government what
steps they are taking to ensure a high standard of corporate
governance at businesses that provide essential public services.
The Parliamentary Under-Secretary of State, Department for
Business, Energy and Industrial Strategy (Lord Henley) (Con)
My Lords, the Government’s corporate...Request free trial
Asked by
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To ask Her Majesty’s Government what steps they are taking
to ensure a high standard of corporate governance at
businesses that provide essential public services.
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The Parliamentary Under-Secretary of State, Department for
Business, Energy and Industrial Strategy (Lord Henley)
(Con)
My Lords, the Government’s corporate governance reform
package will strengthen the United Kingdom’s corporate
governance framework. Secondary legislation to be brought
forward will require reporting on how company directors
take their employee, supplier, customer and other
stakeholder interests into account when carrying out their
duties. It will also require quoted companies to publish
and explain the ratio of their CEOs’ pay to the average of
their United Kingdom employees.
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(Lab)
My Lords, I hear what the Minister says but this is the
second Question we have had this afternoon about public
services. Does this not indicate that the system of fines and
regulation is just not working? Will the Government introduce
a new purpose-driven classification to be adopted by
companies which are privately owned but publicly guaranteed,
because we have to ensure continuity of their essential
public services? It must be a classification that ensures a
standard of behaviour that is responsive to the public and
ensures that company policy and company metrics are aligned
to the public interest and not just to shareholder value.
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My Lords, we have always made it quite clear that the
importance of public services will come first. In terms of
the affair of Carillion, which I think the noble Lord was
alluding to without mentioning its name, my right honourable
friend the Secretary of State made the situation clear in his
initial responses. We have also made it clear that we need to
see some degree of reform of corporate governance. That is
why we brought forward that reform package and why the
Financial Reporting Council has been consulting on its
revisions to the code; when those come forward we will take
that on further.
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(Con)
Is my noble friend aware that the current Lord Mayor of
London has launched a campaign to restore trust in corporate
governance and businesses throughout the United Kingdom? In
that context, will he join the Lord Mayor of London and
extend it beyond that franchise to possibly involve the
Institute of Directors, the CBI, the TUC and trade bodies
throughout the United Kingdom? As I am sure my noble friend
is aware, there is a problem with public trust in the
corporate world. Will he make sure that Her Majesty’s
Government are absolutely in the vanguard of ensuring that
that trust is restored?
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I am grateful to my noble friend for that response and I am
aware of the Lord Mayor’s campaign. In fact, I was present—if
I remember the precise event—at the launch of that campaign
by the Lord Mayor. My right honourable friend the Prime
Minister has also always made her views clear about the
importance of corporate governance and reforms thereof. That
is why we have brought forward this package and why, as I
said, the Financial Reporting Council is consulting on it.
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(LD)
My Lords, the role of the shareholder is very important in
maintaining corporate governance, but increasingly the share
registers of Britain’s companies are dominated by passive
shareholders who do not have the capacity to oversee the
corporate governance of the companies they own. Will the
Minister explain who, in the absence of the shareholder, is
the prime overseer of the board to maintain corporate
governance?
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My Lords, as I said, the code and its revisions will be
important, but it is also important that shareholders play
their part in this process. We have considered that and it is
why we have already brought forward certain reforms to
increase shareholders’ knowledge. For example, shareholders
can now see when companies have significant shareholder
opposition to directors’ pay. The Investment Association’s
public register was launched in December and a number of
investors—that is, shareholders—are already using this
information as a tool to inform their voting in the upcoming
reporting season. If we can improve shareholders’ knowledge,
that will improve what they can do in controlling their
companies.
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(Lab)
My Lords, would it not be a good idea to have representatives
from the workforce on these boards to break up the old boys’
network that exists on a lot of boards? That way we would get
some proper public accountability.
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My Lords, we think it is very important that the voice of
those working for companies should be heard on the board. In
the Corporate Governance Reform Green Paper we made it clear
that companies should have flexibility to choose how best to
engage with their employees, and there are a number of
different ways they can do that. They can have an independent
director who represents employee views, an employee advisory
council or a director directly from the workforce. There are
a number of options. It is certainly something that should be
looked at.
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(Lab)
Does the Minister agree that one of the reasons we are now
experiencing a bit of a run of scandals on outsourced public
services is the lack of information available to public
authorities which have to control them? Will the corporate
governance changes which the Minister responded to give the
Financial Reporting Council greater powers to regulate
companies and to take action before things go badly wrong? It
asked for those powers after the BHS collapse two years ago.
When will we see the results of the lessons learned exercise
on Carillion and the actions required by government,
according to the Secretary of State, to strengthen,
“the oversight … of the public sector in terms of
contractors”?—[Official Report, Commons, 30/1/18; col. 657.]
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The noble Lord is right to draw attention to the role of the
Financial Reporting Council. We believe it has a range of
powers that allow it to sanction, for example, individual
auditors and accountants and to audit firms. In implementing
our reforms, we certainly want to give further consideration
to whether the FRC has the appropriate powers, resources and
status to operate effectively.
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