Corporate governance structures necessary for sustainable returns - PLSA

Written by Talya Misiri

Corporate governance structures are necessary for sustainable returns for investors, the Pensions and Lifetime Savings Association has said.

Responding to the Business, Energy and Industrial Strategy Committee (BEIS) green paper on corporate governance reform, today, 17 February 2017, the PLSA noted that members are becoming increasingly concerned about the widening gap between executives and ordinary workers.

Corporate governance has been brought into the limelight considerably in the pensions sector since the BHS scandal. While corporate governance scandals have hit a number of UK companies in the last few years, it has become evident that UK executives have continued to receive excessive pay awards.

The PLSA noted that as long-term investors in companies with corporate governance issues, its members fear the lack of sustainable growth caused by the growing gap between executives and ordinary employees, and the potential damage to stakeholder relationships.

Key areas that the PLSA is calling for include: extending the threshold for AGM votes on pay awards to pass a ‘super majority’ of around 75 per cent and any company that does not achieve this should be required to partake in another binding vote. Furthermore, it was suggested that companies should disclose their pay ratios between the CEO and workers at different quartiles throughout the organisation.

In addition to this, it was suggested that stakeholder panels or committees should be introduced to monitor the company’s impact on and relationship with stakeholder communities.

Responses to the PLSA’s annual member survey highlighted the significant stake that pension funds retain in the governance of UK companies.

As a result, the PLSA said in its response report: “The PLSA recognises the value of incorporating a stronger stakeholder perspective into corporate governance structures … We believe that in general, working towards the stakeholder interest is consistent with the need to deliver sustainable returns for investors.”

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