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:
- The Financial Reporting Council (FRC) should be empowered, among other things, to report publicly on board or individual director failings.
- 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.
- 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?