Recent high profile scandals and inflated executive paypackets have contributed to a worrying lack of trust in British businesses, a group of MPs has warned.
The group of MPs, which form the Commons Business, Energy and Industrial Strategy Committee, said it was concerning that levels of trust in British businesses was lower than in many other countries.
Iain Wright, who chairs the committee, said recent scandals and the “dramatic ratcheting up” of executive paypackets have undermined public trust in corporate culture, despite the UK generally having a good reputation for corporate governance.
This rise in pay received by many British bosses comes at a time of stagnant wage growth for many workers.
There has been an increased focus on paypackets after prime minister Theresa May pledged to curb extortionate corporate salary schemes.
Think tank the High Pay Centre has claimed companies are failing shareholders by "over-compensating" their top bosses.
According to a new report, corporate governance failings, which have involved high profile companies such as Rolls Royce and Tesco, have also contributed to this erosion of trust.
Mr Wright also said the collapse of BHS highlighted the damage which private companies can do.
The report highlighted a rise of "ownerless companies", where no single investor has a sufficiently large stake in the business to check performance and behaviour.
“Executive pay has been ratcheted up so high that it is impossible to see a credible link between remuneration and performance,” Mr Wright said said, adding: “Pay must be reformed and simplified.”
The committee recommended a number of measures to alleviate the issue, such as implementing a stronger code of governance for private companies and better reporting by companies on how directors fulfil their duties.
It also recommended a major expansion of the Financial Reporting Council’s powers, with a new rating system for companies to be assessed on their corporate governance performance.
The committee also suggested workers be represented on remuneration committees, and called for companies to explain their pay policies better.
Mr Wright said rising stakeholder expectations and changing business models mean that corporate governance needs to evolve to give investors and the wider society confidence.
katherine.denham@ft.com
