Britain needs radical corporate governance overhaul
27 Feb 2017
LBS academic joins call for roadmap to ensure firms flourish for all
Britain needs a radical, new roadmap to overhaul its corporate governance, reporting and investment management industry, if it is to rise to the challenge of lifting investment, innovation and living standards, a London Business School academic has warned.
Alex Edmans is Professor of Finance at London Business School, and one of the authors of a new report published today by The Purposeful Company Task Force, which recommends that the UK’s company law, accounting systems, investment industry, shareholder structure, and executive remuneration, be radically overhauled to promote purposeful companies.
The report, which builds on extensive evidence that companies driven by a vision of their role in the world outperform those that do not, makes the following recommendations:
• Articles of association should state clearly and precisely the company’s purpose, and companies should be regularly certified on the delivery of that purpose
• Directors should be required to report what they are doing to fulfil their legal obligation to ‘have regard’ for all stakeholders
• Structures and systems should be put in place to facilitate corporate diversity which reflects the company’s purpose and business model
• Company reporting should go further than financial assets – it should communicate strategic intent and value to shareholders
• Asset managers should be required to state how they promote the long-term interests of companies they invest in and the savers they invest for
• Executive pay should be simplified and tied to long-term value creation, with Fair Pay Reports introduced
• Regulatory obstructions to blockholders – large shareholders – should be removed and voting with borrowed stock should be limited
• The default pension fund allocation could be set to apportion a given percentage towards purposeful companies, creating a pool of up to £100 billion for such investment
Bringing together a Task Force which includes major industry and government organisations such as Infosys, Barclays, EY, Guardian Media Group, Scottish Government and more, The Purposeful Company Steering Group synthesised the most recent evidence and expertise into its policy report that sets out 22 robust recommendations within 6 key policy areas: Company Law and Reporting, Accounting for Purpose, Repurposing the Investment Industry, Blockholding, Finance for Purpose and Executive Remuneration.
Read the full report.