The three main political parties have now published their manifestos for the 2017 General Election, and each of the manifestos contain some interesting company law and corporate governance-related pledges. Beginning with the Conservative Party’s manifesto, which contains the following pledges:
- Corporation Tax will fall to 17% by 2020.
- The rules that govern mergers and takeover will be updated. Details on this are scant, but the manifesto does state that (i) bidders will be required to be clear about their intentions from the outset of the bid process; (ii) all promises and undertakings made in the course of takeover bids can be legally enforced; and (iii) the government will be empowered to require a bid be paused to allow greater scrutiny.
- Executive pay packages will be subject to strict annual votes by shareholders. It is not clear if the entire pay package will be subject to a binding vote or whether, as is the current case, certain parts will be subiect to a binding vote and others to an advisory vote.
- Employees’ interests will be represented at board level, either through requiring listed companies to nominate a director from the workforce, creating a formal employee advisory council, or assigning responsibility for employee representation to a non-executive director. Employee board representation would be significant reform that has been opposed by companies when suggested in the past, which is why it is highly unlikely to happen. If it happens, my bet would be that the government will adopt the least radical method, namely assigning responsibility for employee representation to a non-executive director.
- The government will consult on how to strengthen the corporate governance of private companies. Given that this is a major plank of the corporate governance green paper, this is unsurprising. The question is whether this will be done by extending the UK Corporate Governance Code to cover private companies, or whether a new Code will be created (I have blogged about this here and here).
Moving onto the manifesto of the Labour Party, which contains the following pledges:
- Corporation Tax will be increased, but small businesses will become subject to the re-introduced lower small profits rate.
- Labour will establish a National Investment Bank, which will support a network of regional development banks.
- Labour will amend company law (by which they presumably mean s 172 of the CA 2006) so that directors owe a duty to shareholders, employees, the customers, and the wider public. This would represent a massive shift in company law, as the long-held principle is that, generally, directors owe their duties only to the company. The issue that arises is that it is extremely difficult to effectively draft a statement of duties that can be enforced by so many persons. By making the directors owe duties to so many persons, the danger is that accountibility is actually reduced, as the directors can justify almost any action as benefitting one of these groups.
- Labour will amend the takover regime to ensure that businesses that are ‘systemically important’ (usually defined as those whose collapse would cause a serious risk to the economy) have a clear plan in place to protect workers and pensioners when a company is taken over.
- Labour would aim to reduce pay inequality by introducing an Excessive Pay Levy on companies with staff with very high pay. No further details on this have been provided.
- Labour would introduce maximum pay ratios of 20:1 for companies bidding for public sector contracts.
- Labour would scrap quarterly reporting for businesses with a turnover of under £85,000.
- Labour would implement the Parker Review on ethnic diversity in the workplace. Quite what ‘implement’ means is unclear. Would legislation be introduced or would a voluntary goal (as with Lord Davies’s review be established) be established with backup from the UK Corporate Governance Code?
Finally, the Liberal Democrats’ manifesto pledges the following:
- The Liberal Democrats are the only party pledging to remain in the single market.
- Corporation Tax would be increased to 20%.
- Tax evasion would be tackled by introducing a General Anti-Avoidance Rule.
- Extend transparency requirements so that larger employers would have to publish the number of people paid less than the National Living Wage and the ratio between top and median pay.
- Staff in listed companies with more than 250 employees would be given the right to request shares.
- Strengthen worker-participation in companies by having worker representation on remuneration committees, and the right for employees of a listed company to be represented on the board. The manifesto goes on to say that the law would be changed to permit a Germany style two-tier board structure to include employees, but no change is necessary as the current law does not prohibit such a board structure. The Lib Dems likely mean that the law would change to expressly cater for such a board structure. Given the dominance of the unitary board structure in the UK, this would be a major reform, and there has not really been an appetite from UK companies to establish a two-tier board.
- The Lib Dems would ‘[r]eform fidduciary duty and company purpose rules to ensure that other considerations, such as employee welfare, environmental standards, community benefit and ethical practice, can be fully included in decisions made by directors and fund managers.’ Section 172(1) of the CA 2006 already requires directors to have regard to most of these factors, so this might not (depending on the details) mbe much of a change.
- The Lib Dems would ‘[r]educe the reporting requirement for disclosure of shareholdings to 1% in order to increase transparency over who owns stakes in the biggest companies.’ This would represent a significant extension of the number of persons who would be required to be listed on a company’s PSC register.
- The manifesto pledges to require binding and public votes of board members on executive pay policies. For quoted companies, the policy section of the remuneration report is already subject to a binding vote. The wording indicates that it will be board members that will be required to publicly vote, but it is well established principle of governance that directors should not be involved in determining their own pay. Quite what a ‘public vote’ is is unclear.
- The Lib Dems will continue to improve board diversity by pushing for at least 40% of board members being women in FTSE 350 companies by 2025. The current Hampton-Alexander Review is aiming for 33% female board representation in FTSE 350 companies by 2020. The Lib Dems also pledge to implement the recommendations of the Parker Review on ethnic diversity.
- Companies with over 250 employees will be required to monitor and publish data on gender, BAME, and LGBT+ employment levels and pay gaps.
Oveall, all three manifestos contain some noteworthy company law and governance reform pledges. However, all the manifestos are thin on details and, as tends to be the case with company law reform, the more radical reforms will likely be killed off rather quickly. One final point worth noting is that, with the mammoth task of negotiating the UK’s exit from the EU looming, one has to ask how much time and attention the new goverment can actually devote to any of these company law-related pledges.