Think-tank Tomorrow’s Company says that UK corporate governance needs “long-term patient capital” to encourage companies to work for sustainable growth.
The view comes in a report written in response to MPs on the House of Commons business committee, who are investigating corporate governance.
Underlying the think-tank’s claim is a proposal for new long-term capital trusts for investment. Tomorrow’s Company says that they would be a “new tax-efficient investment trust structure that has a mandate to support UK economic growth by being an engaged stewardship investor in UK companies”.
There is also a proposal to strengthen the UK’s stewardship code to “cover the role played by different actors throughout the investment chain, covering asset owners, investment consultants and companies, in addition to asset managers”.
Laurie Fitzjohn-Sykes, director of research at Tomorrow’s Company, said: “Continually updating how our companies are owned and governed is critical to creating wealth in these uncertain times.
“We need a government framework that builds on best practice rather than focusing on poor behaviour. These recommendations will, we believe, help to restore the public’s faith in business and support the long-term, sustainable wealth creation that this country needs.”
The report from Tomorrow’s Company was commissioned by the All Party Parliamentary Corporate Governance Group.
Sir Vince Cable said of the report: “The model of corporate governance in the UK has been subject to growing criticism over excesses of corporate pay and lack of strategic, long-term investment decision making.
“Some changes were introduced in the coalition years but more needs to be done. Tomorrow’s Company are to be congratulated on some really creative, thoughtful work on the practicalities of further reform.”
The report includes these bullet points:
- Long-term capital trusts (LTCTs)—the creation of a new tax-efficient investment trust structure that has a mandate to support UK economic growth by being an engaged stewardship investor in UK companies.
- Stewardship stake designation—a new framework providing shareholders in UK companies the ability to designate a specific stake as a stewardship stake.
- Expanded and strengthened Stewardship Code—the expansion of the Stewardship Code to cover the role played by different actors throughout the investment chain, covering asset owners, investment consultants and companies, in addition to asset managers.
- Stakeholder advisory panel—requiring companies above a certain size to introduce a stakeholder advisory panel that has a mandate to provide the board with the stakeholders’ view on long-term success, and challenge the board on the wider duties within Section 172.
- Broaden the remit of the remuneration committee—to include the pay, incentives and conditions of all employees.
- Clearing the clutter from boardrooms—move away from a long list of provisions in the Governance Code with a “comply or explain” requirement, towards a shorter list of principles with an “apply and explain” requirement.