Corporate excess v corporate reputation: lesson learned?

ICAEW would like to hear what members and business think about corporate governance today. Here we explain the background to ICAEW’s Connect and Reflect thought leadership programme and how you can contribute.

Business leaders often feel aggrieved that the reputation of UK plc is disproportionately tarnished by two big news items – executive pay and aggressive tax avoidance. The media and the public have insatiable appetites for these stories as they lie at the heart of the relationship between business and society. Social media is an effective tool for tax shaming, and tax and pay (at the top and bottom) are treated as moral issues.

The UK government has increasingly targeted aggressive tax avoidance and introduced a raft of measures to curb it, most recently requiring large businesses to disclose their tax strategies. This and the greater public scrutiny of tax behaviours has led all business to adopt a much more cautious approach to tax planning as is documented, for example, by the annual PwC survey Building Public Trust through Tax Reporting

The government has recently announced its reforms for executive pay, and they are somewhat underwhelming. Most of the House of Commons Business, Energy and Industrial Strategy Committee’s recommendations have been shelved. Long-term incentive plans aren’t going to be banned, there are no new voting rights for shareholders, and chairs of remuneration committees won’t be forced to resign if a shareholder vote is lost. However, quoted companies will soon be required to publish ratios that compare CEO pay with the pay of the average or median worker. Also, companies that lose shareholders’ advisory votes on directors’ remuneration reports by 20% or more will soon appear on a public register managed by the Investment Association.

In fact the ratios and register are repackaging of information which is already publicly available. We may find that new comparisons are included in ICAEW’s national conversation about executive pay, but this won’t solve the underlying problem. Ironically ratios may lead to pay increases. For example, executives who are doing less well than their peers may use ratios in their pay negotiations, or they may be targeted by head hunters who want to poach them for better remunerated positions.

Ultimately it will still be down to boards to take difficult decisions on remuneration and tax. These decisions tend to define the company’s culture both for insiders (especially employees) and outsiders.

The best companies will want to lead best practice, rather than being expert in how to minimise legal or regulatory compliance. That is why ICAEW has developed Connect and Reflect, our latest thought leadership programme for corporate governance. We are exploring the most difficult dilemmas facing business today and we want to collate examples, anecdotes and case studies. Media headlines are littered with corporate scandals, but we are just as interested in good practices. As well as looking at how to end excessive pay we also investigating:

  • How companies thrive on social media
  • How whistleblowing helps companies
  • How employee directors add value
  • How to mark governance out of 10

Please join the conversation: icaew.com/connectandreflectblog

 

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