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The CBI has responded to the Business, Energy and Industrial Strategy Select Committee on Corporate Governance. 

Carolyn Fairbairn, CBI Director-General, said:

“Good corporate governance is an essential ingredient for trust between business and society. Companies agree that corporate governance practice should evolve to support a modern economy whilst at the same time making sure the UK remains an attractive place to do business.”

On executive pay, Carolyn said:

“Executive pay has become a lightning rod for public discontent. The CBI is absolutely clear that the unacceptable behaviour of the few does not reflect the high standards and responsible behaviour of the vast majority of companies.

“Pay ratios have a role to play, providing that they focus on providing meaningful context, if they are to add value in this debate.

“The Committee is right to reject annual binding votes on executive pay as disproportionate.

“While complexity remains a problem with long-term incentive plans, banning them outright would reduce flexibility for companies to reward their senior leaders.”

On strengthening the stakeholder voice, Carolyn said:

“The report is right to focus on better engagement between boards and stakeholders. Having stakeholder representatives on boards or remuneration committees might make sense for some companies, but every business is unique.  Mandating a single idea risks stifling the approaches companies already have in place or are considering.”

On private companies, Carolyn said:

“People expect high standards of corporate governance regardless of company type and we support proportionate efforts to raise the bar among large private companies.”

On diversity, Carolyn said:

“The Committee is right that improving diversity on boards and senior leadership roles is a key business issue. It improves decision making and brings a wider range of experiences to the table.

“Business led initiatives to increase gender diversity on boards have made a real difference since 2010, though there is still much to do.  Companies recognise that they must extend their focus to improve gender diversity in management positions, but also ethnic diversity at senior levels.

“In the short term, improving voluntary transparency and reporting on these two areas – with clear targets set by businesses themselves - should be our first priority. At this time, legal options are not likely to be the best tool to achieve good progress.”