Any new corporate governance measures must add value


Mike Fox, Head of Sustainable Investments 

29 August 2017

We welcome the attention that the Government has given to corporate governance issues and executive pay, however any new measures that are introduced need to add value to what is already in place. The current system does seems to be working: shareholders have become more proactive, the vast majority of companies have responded appropriately and this is the key reason why chief executive pay has fallen by almost 20% this year. 
We are pleased to see that the Government has introduced flexibility to get companies to increase diversity and representation in the boardroom, realising that employee representation is not a one-size-fits all solution. On the other hand, we don’t think that forcing listed companies to reveal the pay ratio between bosses and workers will be meaningful. It will show large discrepancies between sectors depending on the nature of the workforce and the results could easily be manipulated.

We welcome the attention that the government has given to corporate governance issues and executive pay, however any new measures that are introduced need to add value to what is already in place. The current system does seem to be working: shareholders have become more proactive, the vast majority of companies have responded appropriately and this is the key reason why chief executive pay has fallen by almost 20% this year. 

We are pleased to see that the government has introduced flexibility to get companies to increase diversity and representation in the boardroom, realising that employee representation is not a one-size-fits all solution. On the other hand, we don’t think that forcing listed companies to reveal the pay ratio between bosses and workers will be meaningful. It will show large discrepancies between sectors depending on the nature of the workforce and the results could easily be manipulated.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.