The government has ordered regulators to ensure that the UK Corporate Governance Code makes it clear non-executives can receive payment in shares.

In another move, the disclosure of shareholder revolts (votes of 20% or more against a board) on the Investment Association’s Public Register will also come to an end, a victory for City campaigners who have argued it should be shut down.

The announcements came this week as part of the lastest tranche of reforms in the government’s Regulation Action Plan, an effort by the Treasury to streamline regulation to promote growth.

Chancellor Rachel Reeves famously commented that regulation is a “boot on the neck of businesses”.

The action plan says: “The Financial Reporting Council (FRC) will clarify the UK Corporate Governance Code guidance to make clear that the payment of non-executive directors in shares is appropriate, enhancing the ability of UK listed companies to attract the highest calibre of talent on the global stage.”

Provision 34 of the governance code says: “Remuneration for all non-executive directors should not include share options or other performance-related elements.”

There are concerns shares could challenge the “independence” of non-executives. Provision 10 of the code says ownership of shares within three years of appointment could “impair, or could appear to impair a non-executive’s independence”. As could receiving “additional remuneration from the company apart from a director’s fee”, or participation in share options.

Shareholder revolts

Turning off the Public Register will be a moment of celecration for City grandees at the Capital Markets Industry Taskforce (CMIT), a lobby group, who have argued the Public Register should go. Disclosure is also covered by Provision 4 of the governance code which says a company must publish an explanation of its response to shareholder revolts.

CMIT has argued that the threshold for publication to the Public Register is arbitrary and may deter boards from making sensitive proposals that could attract the ire of investors and proxy advisers.

The government said in its action plan: “We are grateful to the IA [Investment Association] for establishing the register following a request from government, however, the register has served its purpose and this removes duplication with UK Corporate Governance Code requirements that already provide transparency for investors, supporting our wider efforts to streamline our corporate reporting framework.”

Governance consultant Chris Hodge commented on LinkedIn: “The only rationale I can think of is that the government wants to make it easier for companies to ignore dissenting votes but doesn’t want to draw attention to that by telling the FRC to drop Provision 4, so they are trying to stifle monitoring efforts instead.”

These were not the only governance changes touted in the action plan.

Fewer reports

Medium-sized companies will be exempt from producing a strategic report in annual reports, as will wholly owned subsidiaries when covered by a parent.

More significantly, the government says it will remove the need to produce a directors’ report, although the action plan also suggests some elements of the report will be retained and relocated elsewhere in annual reports.

Section 415 of the UK’s Companies Act, 2006, places a duty on boards to produce a directors’ report which is normally used to give a narrative view of a company’s performance and risks, ESG information and a statement on the application of the corporate governance code.

The government says the measures in the plan, along with other previously announced changes, “continue the pace of reform to deliver an effective reporting framework for company and investors.”

There is much for governance experts to pick over in this week’s changes. This may not be the last time governance is affected as the chancellor continues to tackle watchdogs and their work.