UK Prime Minister Theresa May has committed her government to tackling what she sees as corporate irresponsibility by a small number of companies and to improving board diversity by including workers and consumers.

Speaking at the Conservative Party Conference May emphasised the role of citizenship that companies should also embrace, "That means a commitment to the men and women who live around you, who work for you, who buy the goods and services you sell.  That spirit that means recognising the social contract that says you train up local young people before you take on cheap labour from overseas.  That spirit that means you do as others do, and pay your fair share of tax."

Corporate Diversity & Responsibility

Commenting on how to tackle corporate irresponsibility May said, "Too often the people who are supposed to hold big business accountable are drawn from the same, narrow social and professional circles as the executive team. And too often the scrutiny they provide is not good enough. A change has got to come. So later this year we will publish our plans to have not just consumers represented on company boards, but workers as well.".

Responding to the speech, the Financial Reporting Council (FRC) said it  supported the need for change in the relationship between business and society. As the guardian of the UK Corporate Governance and Stewardship Codes, the FRC said it was keen to explore how it can ensure governance and investment are more closely aligned with the broad public interest.

Stephen Haddrill, chief executive of the Financial Reporting Council said, “We share the objective of wider stakeholder engagement by companies and are considering how corporate governance principles can best meet the demands of all stakeholders or be amended to do so. We look forward to responding to the Government’s consultation later this year and will propose measures to realign the interests of business and society.

Stakeholder Engagement

Tackling important issues such as diversity in boardroom representation and executive pay is in the interests of society and business. In particular we need to look at how boards set pay, respond to votes at annual general meetings on remuneration and align pay and culture. We should also look wider at other issues including how directors are held to account in relation to their obligations to all stakeholders.

The success of business is essential to our prosperity and well-being. The UK is home to many high-performing companies with excellent reputations, products, services and working environments. But there has been a loss of confidence in business – particularly big business. If we ignore this, damage will be done to our economy and prosperity. There are no simple solutions. We need the right balance of reform of governance requirements and focus on corporate culture to improve the relationship between business, wider stakeholders and society.”

James Sproule, Director of Policy at the Institute of Directors said, “As a long standing trailblazer for good corporate governance, the IoD welcomes the Prime Minister’s focus on how corporate leadership can aid economic and social success. Business leaders are not pantomime villains, evading taxes and employing cheap labour from abroad out of some destructive desire to do Britain down, and for every Mike Ashley or Philip Green there are hundreds of thousands of hard-working entrepreneurs who are more likely to re-mortgage their homes than own a super yacht. Those people will now be watching the Autumn Statement and the Chancellor like a hawk, expecting more measures to promote enterprise and investment than we saw in this speech."

Workers on Boards

TUC General Secretary Frances O’Grady said,“We're pleased Theresa May has renewed her commitment to having workers on company boards. This is a good first step towards building a fairer economy. However, we are still miles away from having a country that works for the many. UK workers suffered the biggest fall in wages of any developed country after the crash. Those working in the public sector and private sector urgently need a pay rise."

Prior to May's speech the TUC released a report which sets out the case for worker board representation and included detailed proposals for implementation. The TUC believes that if Theresa May began a consultation shortly after the Conservative Party Conference, the policy could be on the statute books within 12 months. The report suggests that the new law should apply to all firms with workforces of over 250, and could be phased in gradually, starting with larger businesses. The TUC also believes that there should be a quota system for the level of worker representation and suggested a third of company board members should be worker representatives directly elected by their colleagues.

The TUC says that allowing workers to sit on company boards would encourage the long-term success of individual firms, as both employees and directors worked together in the interests of long-term company performance. The report also argued that the current approach of relying solely on shareholders to hold companies to account has delivered neither economic success nor social justice. The report found that similar requirements are in place in 12 other EU member states, including Germany, Sweden, Austria and the Netherlands. Surveys there reveal that the majority of businesses viewed employee representatives on the board positively.