6 January 2020
Following a number of high-profile corporate governance failings over recent years we have seen rapidly falling levels of trust in large corporates and increasing demands for transparency and better governance. 2020 promises to be another year of increased scrutiny from investors and a year when employee as well as consumer considerations come to the fore.
Against this backdrop, it is critical that companies understand the risks facing them and have given thought to how they articulate their values and purpose – bearing in mind that it has never been easier for those with a grievance to share information and build a collective.
Here are three topics which I think will cause fur to fly over the coming year and which, if badly handled, have potential to damage reputations, consumer trust and employee morale as well as share price.
The annual report season has always been as hotly anticipated by the media as the Glorious Twelfth is for the avid shot. 2020 should yield a bumper bag given the new corporate governance reporting requirements coming into play. Following hot on the heels of Gender Pay Gap reporting, we will be hunting big game with the first edition of CEO pay gap reporting.
When it comes to income inequality, the UK is one of the most unequal countries in Europe. Fat Cat Day, the third working day of the year when the earnings of a typical FTSE 100 company CEO surpass the average annual UK salary (see High Pay Centre report), is already an annual media event (e.g. Daily Mail, BBC).
This year, the annual reports of publicly listed companies with more than 250 employees will have to disclose the gap between their CEO’s pay and that of the average worker. Unlike gender pay gap reporting, they will also be required to explain the reason for the ratios. You may have noticed a few forward-thinking companies cutting their CEO pay packages last year. As a result, this year CEOs had to work until teatime on the third working day rather than lunchtime. Nonetheless, expect fireworks from the media, investors and employees alike when the pay ratio numbers come out.
We can also expect rich hunting grounds from the requirement for the publication of Section 172 statements. Under s172 Companies Act 2006 directors have long been under a duty to promote the success of the company for the benefit of its members as a whole, not just shareholders. In doing so, directors are obliged to have regard to the following factors:
Directors will now have to report on how they are fulfilling this obligation in a s172 statement. Whether employees, customers and suppliers will agree with their rationales remains to be seen.
The tussle between open justice and privacy continues as the hunter becomes the hunted. Expect further revelations regarding misconduct by senior figures, together with ongoing scrutiny of secrecy orders and the use of non-disclosure agreements in employment disputes. The identity of the multi-billionaire businessman, “Mr X”, is still under wraps following the wide-ranging “secrecy order” imposed by the High Court last year. However, the media is not giving up the chase and the Times revealed last month that a criminal investigation is underway following criminal charges being brought by one of the women who had signed an NDA in the earlier employment tribunal case. It doesn’t feel like this story, or the broader topic, is going away any time soon.
Kate Miller is a Partner at DRD Partnership, London.