The UK’s responsible investment community has welcomed comments by the country’s incoming prime minister, Theresa May, indicating she would introduce a number of sweeping corporate governance reforms, including a more regular binding vote on pay.
May, confirmed as the next prime minister after her competitor to succeed David Cameron withdrew from the race on 11 July, pledged during her first, and now last, major campaign speech that she would tackle “corporate irresponsibility”.
In addition to pledging to make votes on remuneration packages binding, May also argued in favour of greater corporate transparency, saying companies should publish pay ratios.
The Local Authority Pension Fund Forum and UK unions have long called for the ratio between the pay of management and average workers to be disclosed, and France’s civil service pension fund ERAFP has opposed any pay packages where executive remuneration exceeds 50 times median pay.
May further suggested corporate board composition should be changed to include not only consumer representatives but also members representing employees – an established practice in parts of Continental Europe, including Germany and the Scandinavian nations.
Representatives of the pensions and responsible investment community all gave a cautious welcome to the ideas outlined by May, set to be sworn in as prime minister on 13 June.
Fergus Moffatt, head of public policy at UKSIF, noted that the UK currently had a binding vote on remuneration every three years, but he welcomed the potential for more regular binding votes.
“It will be crucial to see what the policy is – and to see it fleshed out in more detail, to be put to public consultation with investors, business and civil society,” he said.
May also criticised “transient shareholders”, alluding to the role of asset managers in approving mergers and acquisitions, and stressed that shareholders were not the only ones affected by such transactions.
Jonathan Hoare, director of policy at ShareAction, said the organisation was “heartened” by the outgoing home secretary’s comments.
“There’s a theme running through the speech of long-termism, of custodianship, of stewardship of assets and institutions important to wider society,” he said.
Hoare further held out hope the new UK Cabinet would reform fiduciary duty, a matter championed by the organisation even before the UK Law Commission published proposals for change in 2014.
Reform proposals were rejected by the Department for Work and Pensions last year.
Luke Hildyard, policy lead for stewardship and corporate governance at the Pensions and Lifetime Savings Association (PLSA) joined Moffatt and Hoare in stressing it would be important to await the detail of any proposals, and noted a campaign speech should not be equated with a firm policy proposal, or even a pledge during a general election campaign.
“The key point to emphasise is that the devil will be in the detail once her words are turned into something more concrete,” he said.
Hildyard nonetheless said May’s speech appeared reasonable and welcomed her attention to the matter of executive pay, which he said had long been a concern of PLSA members.