Margaret Beckett’s decision to step back from a full-frontal assaultf-regulation. on the Hampel committee report on corporate governance and to allow the City three years to make self-regulation work was welcomed by the business community last week.
The CBI and IoD also said proposals to overhaul company laws, set out by the President of the Board of Trade at a conference held by corporate governance lobby group PIRC, could provide a positive framework for business growth.
But they were sceptical about specific measures that would force shareholders to vote at annual general meetings and to vote on directors’ remuneration in particular. Instead, they argued the current system of governance had proved robust and was based on disclosure rather than a set of rigid rules that will fail to adapt to new challenges.
A CBI spokesman said: ‘Legislation rather than voluntary adoption of good practice could introduce rigidity and prevent corporate governance adapting to rapid changes in company operations.’
Beckett admitted legal restrictions on companies do not always work.
She said: ‘While the legal system can be used to enforce aspects of best practice, the very best will adopt even better practice because they see its value, and will do so more readily of their own accord than if it is forced on them.’
But she is known to dislike the focus of the Hampel committee report on shareholders at the expense of other stakeholders in a company and the flexibility he allows companies to ignore some recommendations of best practice.
Beckett said she was concerned few institutional investors voted, despite the comments in the Cadbury report in 1993, that institutions should wherever possible register their votes. In response she indicated that unless institutions played a more active part in the stewardship of companies they would be compelled to vote by law, especially on directors’ pay.
Tim Melville Ross, director-general of the IoD, said he was concerned the government wanted shareholders to play a part in restricting ‘fat cat’ pay.
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