corporate law in the uk

What Proposals Does The Green Paper Want To Add To Corporate Law In The UK?

Linkilaw Company Law

At the end of 2016, the Government revealed a new Green Paper touching on two areas of potential improvement to corporate law in the UK. With so much attention being paid to the Brexit and what repercussions it will have on virtually every facet of British life, this is a good look at what some of the earliest changes could be to corporate law in the UK.

Executive Remuneration

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This has long been a case of American envy as the payment scale in the US far outweighs that in the UK, which infuriates British execs, while the public fumes over the likes of Barclays where senior executives got million-pound bonuses while the stock dropped 30 per cent.

The Green Paper speaks on making companies more responsive to external factors such as the interest of their stakeholders and the governance framework for those larger companies that are private.

This debate isn’t new; it’s been reported on by the Government since at least the mid-1990s. There are two main problems with giving out high levels of pay for executives. The first is fairly obvious to the layperson: Pay unrelated to performance can be a dangerous thing as it gives higher-up employees no tractable reason for motivation. Second, the fear of an executive paid so much more than employees of the same company leads to social inequality.

The main theme of the Green Paper is that shareholders should have a more active hand in determining the pay of their CEO so this is quite a significant potential improvement to corporate law in the UK. 

Enhanced Voices

A second component of corporate law in the UK that the Green Paper addresses is entitled “Strengthening the employee, customer and wider stakeholder voice.” The disconnect between the board room and the rest of the company is a fear that really was well-represented by the Brexit vote last spring. This is reflected by a call for more diversity in the boardroom to reflect on the different demographics of the customers and the employees.

The thought is that executives with little “real world” experience are likely to become so enamoured with the company’s success that they are blind to being critical of their own operation.

In Summary: Corporate Law In The UK

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While it’s nice to imagine UK corporate higher-ups, customers, shareholders, and employees getting together and doing what’s best for everyone, it’s a grim reality that this won’t be happening anytime soon.

The best we can hope for is that the Brexit establishes some firmer boundaries about what it means to be a company in the UK and a happy medium can be established that has all parties satisfied. If this can be achieved then we’ll see some meaningful changes to corporate law in the UK.

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