Association be readily available to scrutiny by the general

Association CEO Chris cummings also commented that ”a significant number of companies need to seriously start listening to shareholder views and acting on them.”1 this could also benefit the company in ways such as enhanced public perception and engagement.  However, one of the main reasons there is rapid rise in executive pay is lack of shareholder’s exercising their rights under section 172 of the companies act 2006{ref}.

 Shareholder decision-making can only be made by way of meetings for public companies, and are viewed as an important arena for members to voice concerns. Historically, they were often well attended with vigorous debate and meaningful voting. Now, as Hannigan states it is a ‘weak and ineffectual method of control’ as it is poorly attended and shareholders are ill-informed.

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 {ref} Moreover, those that attend do so in small numbers and are unrepresentative of all shareholders and this has resulted to an increase in shareholder passivity.  Perhaps a less controversial alternative rather than imposing a pay cap is to encourage voting by individuals as opposed to institutional shareholders, as these individuals are more likely to share the general public’s concerns about the high executive pay. However, as individuals now hold such a small portion of the shares in listed companies, any rise in their levels of engagement would be unlikely to result in a fall of director’s pay.  {ref} The other main proposal was to introduce an employee advisory council or have an employee representative on the board itself, the aim of this is for the board to consider stakeholders interest. The idea here is that companies will be required or encouraged to constitute committees of stakeholders, rather than sole representation from only employees, consumers or shareholders as individual groups. These committees will be tasked with advising and consulting with the board in relation to policy and strategy. Although this would be a very good way for pertinent issues to be discussed from various stakeholder groups but in terms of having a real influence on the way policy and strategy of a company is formulated, it is unlikely to have significant effect.

With that said, if the advisory stakeholder committees were able to publicly publish their concerns and perhaps even details of their discussion with boards, this may have more of an effect considering the public fall out and potential damage to public relations should material concerns be readily available to scrutiny by the general public such that directors may be embarrassed into changing their strategy and policy. For example, the recent case of Bath university chancellor which led to her resignation after her excessive salary and bonuses were published2 Although this will definitely give increased prominence to stakeholder’s views and it will also ensure that directors listen to the voice of employees, the effectiveness of this reform in changing the board’s behaviour in terms of their actual decision is uncertain. A company that is well run should already have in place some sort of mechanisms for ensuring that stakeholder’s interests are taken into account,3 which could therefore render this reform unnecessary, however their attention will certainly be drawn to this key component of their obligation under the statutory statement of director’s duties.  perhaps some directors will benefit from having their attention drawn to this key component of their obligation under the statutory statement of director’s duties.   Importantly, the proposal for designated non-executive directors potentially could be a good way forward for UK listed companies to have a board constituted of executive and non-executive directors. The concept here will be to designate a particular non-executive director as a liaison effectively to particular stakeholder groups.

This approach could really give stakeholders including employees direct line of influence into the way policy is formulated.  For example, if the non-executive director designated to liaise with employees was also required to serve in the remuneration committee, if employees have concerns about the divergences between pay of executives and that of employees, the non-executive director could take those concerns directly into the forum of either the remuneration committee that they consult with or to the board whilst also providing input into policies on executive remuneration. Hence, the proposal to designate non-executive director to the board could be a potential solution to maintain control on the spiralling top executives pay in line with those of company’s average employees. In conclusion, the current approach could be said to consist of a mixture of legislation and ”soft law” – the corporate governance code. The combination of both can be said to be a good way to balance company’s autonomy and shareholders and stakeholders  interests, however too much emphasis is placed on the non-legislative measures   Perhaps, what this new reform proposed by the UK government should have taken into consideration is as shareholder’s interests are being ignored, section 172 should be turned into a pluralist duty that ranks equally with shareholder’s interests.  Although using this method may seem radical, but in reality, companies as a whole are under increasing pressure to change their behaviour.  For example, as stated in the white paper the government will monitor the effectiveness of this reform and if its progress is insufficient they will consider further actions4 which begs the question as to why the government didn’t legislate accordingly in some areas in which they are convinced that there is a right and wrong way to behave.  Overall, the proposal does present a really interesting set of policies clearly targeted at a perceived disconnect between big businesses and society in general and with the climate of populous movement throughout the world this is going to become a political priority.

It will be fascinating to see whether the implementation of this new legislation will keep a check on the rapidly increasing executive pay and pay that bears no correlation to performance.  1 Ibid 6  2  Richard Adams, ‘Bath University Vice-Chancellor Quits After Outcry Over £468K Pay’ (the Guardian, 2017) accessed 26 December 2017. 3 Nigel Banerjee, ‘Corporate Governance Reform – More Of The Same’ (Jordanpublishing.co.uk, 2017)

jordanpublishing.co.uk/practice-areas/law-for-business/news_and_comment/corporate-governance-reform-more-of-the-same#.WkJohlSFgWo> accessed 26 December 2017. 4 Department for Business, energy & industrial strategy, ‘CORPORATE GOVERNANCE REFORM’ (2017)

pdf> accessed 26 December 2017.