What are the odds that New Labour will legislate for corporate governance?
In an article for Accountancy Age at the end of last year, I warned that in spite of the fact that Margaret Beckett would accept the recommendations of the Hampel Report, New Labour would still hold legislation in reserve by way of a new Companies Act towards the end of the present parliament.
Since then, while Hampel is indeed rolled up with Cadbury and Greenbury into a new voluntary Stock Exchange supercode, Beckett has announced a three-year review of company law, with legislation due in the next parliament.
However, neither she nor junior minister Lord Haskel in the Lords ruled out a pre-emptive legislative strike, should this be called for. Lord Haskel complained that if the supercode did not work out – if companies did not adopt best practice – the government had not ruled out legislative action.
Beckett’s main concerns lie in the role of institutional investors and their voting patterns and their apparent inability to voice their concerns on pay. She sees a disappointing rise in voting levels since Cadbury first called for increased shareholder voting.
Nor would the trade president rule out requiring more information by companies on performance, or requiring directors to stand for re-election every year so that shareholders can comment on the performance of remuneration committees.
Clearly, Beckett has no desire to pre-empt her own three-year review.
The code of practice combining Hampel, Cadbury and Greenbury will not be bedded into the listing requirements of the Stock Exchange until next spring, but the City should not feel that no legislation will be introduced this side of a general election.
It would be perfectly possible for the government, should it be so minded, to introduce clauses to another bill that would impose duties upon institutional investors attending agms.
Continuous and perceived extravagance in pay awards to directors and massive share option schemes coming to wealthy fruition may well be a trigger for government action.
/Stuart Bell is Labour MP for Middlesbrough and adviser to Ernst & Young.
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