Large non-listed companies in the UK will have to report on how they take into account the interests of employees, shareholders and the environment in which they operate, in what will be the biggest overhaul of the corporate governance regime in recent years.

The government has set out a number of key updates that it wants enshrined in either the UK Corporate Governance Code or in new legislation, following up on its governance green paper from the end of 2016.

The green paper’s earlier stance on holding back from proposing compulsory employee representatives on boards has been maintained. Business secretary Greg Clark (pictured) has called for new laws that will require:

• Listed companies to publish “and justify” the pay ratio between CEOs and their average UK worker;
• All companies “of a significant size” to publicly explain how directors take employees’ and shareholders’ interests into account;
• All large companies to make their “responsible business arrangements” public; and
• The FRC to introduce into the code a “comply or explain” requirement to assign a non-executive director to represent employees, or create an employee advisory council, or nominate a director from the workforce.

“At a time when investment and competitiveness are key, it is right that we build on our corporate governance strengths to equip us for the economic opportunities and challenges that lie ahead,” said Clark.

Stephen Haddrill, CEO of the FRC, added: “How we develop the framework will be key to boosting competitiveness, transparency and integrity in business particularly after Brexit.”

The government’s feedback will “help inform” the development of the FRC’s own consultation into updating the code later this year, Haddrill added.

The reform plans include the reporting of executive pay ratios, which the business community variously describes as “crude” and a “step in the right direction”.