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Internet Archive Book Images

I’ve previously commented on the surprising governance initiatives of the Conservative (yes, Conservative) Prime Minister of the UK.  Well, our friends across the pond are at it again – or maybe it’s just more of the same.

Specifically, on April 5, Parliament’s Business Committee issued a series of recommendations contemplating the following:

  1. The Financial Reporting Council (FRC) should be empowered, among other things, to report publicly on board or individual director failings.
  2. The FRC should rate companies on governance practices. The ratings would be color-coded (red, yellow and green), and companies would be required to reference them in their annual reports.  If you’re thinking of Hester Prynne’s scarlet letter, you’re not alone.
  3. Companies would be subject to a slew of new rules on pay:

  • Long-term plans would be replaced by stock subject to a five-year deferral.
  • Compensation committee chairs would “be expected to” resign if a say-on-pay vote garners less than 75% support.
  • Workers should be represented on compensation committees.
  • Pay ratio disclosure would be required.

The recommendations reiterate that private companies should be subject to a new corporate governance code.  They also call for expanded diversity as to both gender and ethnicity.

I’m a self-confessed governance nerd who believes that good governance leads to long-term corporate health and good performance.  However, as my grandmother used to say, “everything in moderation” – and, to my mind at least, these proposals are not moderate.  I might feel better if the politicians who make up these things were as accountable as they’d like companies to be, but can you really see an MP (or a US congressman or senator – or president) give himself anything less than a gold star?