Company law review may bring boardroom crackdown
Thursday 29 January 1998
result in a legislative crackdown on boardroom behaviour.
The announcement came as Margaret Beckett, President of the Board of Trade, supported the key recommendations of the Hampel report, which recommend a voluntary, rather than statutory, approach to corporate governance. Michael Harrison reports.
Welcoming the report on corporate governance produced by Sir Ronnie Hampel, chairman of ICI, Mrs Beckett said the Department of Trade and Industry intended to publish a wide-ranging Green Paper on company law around Easter.
The first hint of the Department of Trade and Industry's thinking will emerge in early March when Mrs Beckett addresses a conference organised by the corporate governance consultants Pirc.
DTI officials later confirmed, however, that the Green Paper would embrace areas covered by the Hampel report and could result in proposals for fresh legislation.
It was unclear though whether the DTI intended to legislate in controversial areas such as forcing institutions to vote at annual meetings and requiring companies to get shareholder approval for executive pay packages.
Sir Ronnie said that the Hampel report, together with the Cadbury and Greenbury reports, would be drawn into one "supercode" that firms would have to adhere to as part of the Stock Exchange's listing rules.
His 10-strong committee also ruled out proposals for a standing committee on corporate governance, arguing that it would get bogged down with endless rule changes and arbitrating on individual complaints.
Sir Ronnie said the committee's final report did not vary greatly from its draft report published last August because the vast majority of responses had been supportive.
However, corporate governance action groups criticised the report as a missed opportunity. Sarah Wilson, managing director of the corporate governance analysts, Manifest, described the report as "a disappointing compromise with no significant changes" and added: "There is a real risk that the Hampel Committee's final report will lead to greater government legislation."
The Non-Executive Directors' Forum also questioned aspects of the report, in particular the practical implementation of Hampel's recommendations.
Business groups and institutional shareholders gave the report a broad welcome. The Confederation of British Industry said it provided "a viable framework for good practice in corporate governance" and welcomed its focus on good practice and the need for flexibility.
Tim Melville Ross, director-general of the Institute of Directors, welcomed the report's recognition that "good corporate governance must contribute both to company prosperity and proper accountability".
The National Association of Pension Funds backed Hampel's recommendations, saying "principle rather than prescription is the way forward", while the Association of British Insurers backed the committee's pragmatic approach.
Sir Ronnie has stuck by his guns and recommended that a named non-executive should be given a lead role in acting as "troubleshooter or safety valve" where there is grave concern about the running of the company, despite reservations voiced by the CBI.
The committee says there is no case for requiring institutions to vote at annual meetings. However, it tightens up its recommendation from the draft report to say that large shareholders have a responsibility to make "considered use" of their voting rights.
Elsewhere, the report backed Cadbury's original call that director's service contracts should be limited to one year. However, it ducked the issue of whether directors should be entitled to compensation for agreeing to shorter notice periods.
Sir Ronnie declined to comment on the specific case of Granada, which proposes to give five directors pounds 374,000 compensation for agreeing to reduce their entitlement from three to two years' pay in the event of a takeover. But Sir Ronnie added: "Shareholders have got the facts. If they do not like it, they should kick the company in the teeth."
Sir Ronnie said the single most important feature of the report was the onus it put on companies to disclose their corporate governance arrangements and justify their failure to conform to best practice.
Outlook, page 25
ins and outs of the Hampel report
Super-code incorporating Hampel, Cadbury and Greenbury to become part of Stock Exchange listing rules
Companies required to justify any departure from best practice
Named senior non-executive director to act as troubleshooter
Financial Reporting Council to keep need for further inquiry under review
Institutions to make `considered use' of votes at agms
Non-execs may be paid in shares but not share options
WHAT'S RULED OUT
A permanent committee on corporate governance
Compelling institutional shareholders to vote at annual meetings
Shareholder approval for board remuneration packages
Two-tier boards, one responsible for management and the other for supervision
Board representation for stakeholders, such as customers, employees and suppliers
Prescribing the number of executive and non-executive directors a company should have
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