UK: The Prime Minister speaks about corporate governance

The Prime Minister, the Rt Hon Theresa May MP, delivered a speech today at the CBI annual conference: see here. The Prime Minister said some more about the forthcoming green paper on corporate governance, in particular the Government's position on worker representation on boards. Worker representation - if that is taken to mean the direct appointment of a worker or trade union representative to the board - will not be mandatory. Here's an extract from the speech:

But just as government needs to change its approach, so business needs to do so too.

For we all know that in recent years the reputation of business as a whole has been bruised. Trust in business runs at just 35% among those in the lowest income brackets. The behaviour of a limited few has damaged the reputation of the many. And fair or not, it is clear that something has to change. For when a small minority of businesses and business figures appear to game the system and work to a different set of rules, we have to recognise that the social contract between business and society fails – and the reputation of business as a whole is undermined. So just as government must open its mind to a new approach, so the business community must too. That is why we will shortly publish our plans to reform corporate governance, including executive pay and accountability to shareholders, and proposals to ensure the voice of employees is heard in the Boardroom.

The UK rightly has a strong reputation for corporate governance – the Cadbury, Greenbury and other reforms, built on the strong foundations of the Companies Act and the Corporate Governance Code, have made the UK a prime location for listing and headquartering. But we can’t stand still – we must continue to make improvements where these result in better companies and improved confidence in business on the part of investors and the public.

Much can be done by voluntary improvements in practice – in the representation of women on company Boards and in senior positions for example, or in broadening diversity. But where we need to go further we will. So there will be a Green Paper later this autumn that addresses executive pay and accountability to shareholders, and how we can ensure the employee voice is heard in the Boardroom.

This will be a genuine consultation – we want to work with the grain of business and to draw from what works. But it will also be a consultation that will deliver results. And let me be clear about some important points.

First, while it is important that the voices of workers and consumers should be represented, I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on Boards. Some companies may find that these models work best for them – but there are other routes that use existing Board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented. It will be a question of finding the model that works.

Second, this is not about creating German-style binary boards which separate the running of the company from the inputs of shareholders, employees, customers or suppliers. Our Unitary Board system has served us well and will continue to do so. But it is about establishing the best corporate governance of any major economy, ensuring employees’ voices are properly represented in Board deliberations, and that business maintains and – where necessary – regains the trust of the public.

There is nothing anti-business about this agenda. Better governance will help companies to take better decisions, for their own long-term benefit and that of the economy overall. So this is an important task. We will work with you to achieve it, and I know you will rise to the challenge".