The reform is expected to strengthen the voice of other stakeholders from employees to suppliers and pension trustees

The reform is expected to strengthen the voice of other stakeholders from employees to suppliers and pension trustees

Large UK-based private businesses will face greater scrutiny from next year after the British government revealed plans to develop the country's first ever corporate governance code for big unlisted companies.

In a move aimed at increasing transparency and enhancing trust in business, the government has asked the Financial Reporting Council (FRC) to develop a voluntary set of governance principles for large private companies.

The measures, set out by Business Secretary Greg Clark today (29 August), are designed to crack down on business bad practice and come in the wake of the collapse of retail giant BHS last year, which left 11,000 staff out of work and the company's pension scheme in jeopardy.

"Large private companies are integral to the UK economy as significant employers and supporters of communities and families," says Stephen Haddrill, CEO of the FRC. "It is right that we develop a set of corporate governance principles to enhance confidence that they act in the public interest."

The code, which could come into effect by June 2018, will be voluntary, but is expected to strengthen the voice of other stakeholders in the business from employees to suppliers and pension trustees.

"This is a step in the right direction, providing greater transparency and focusing the public's attention on those companies who ignore the concerns of their shareholders," Stefan Stern, director of the High Pay Centre think-tank, has said. "We want investors and boards to ‎have a more constructive and more thoughtful conversation on executive pay, and this sort of public disclosure should help."

The final definition of a large private company is subject to formal consultation, which will launch later this year, but it has been suggested it could be defined as a business with more than 1,000 employees. Companies are likely to be required to produce an annual report detailing how they meet the standards.

The move is part of wider measures set out by the government today, which will also see the implementation of new laws instructing 900 listed companies to reveal the pay ratio between chief executives and their average member of staff.

Businesses will also have to ensure staff of listed companies are better represented at board level, either by allowing workers to nominate a director, creating an employee advisory council or nominating a non-executive director to represent the workforce.

The requirement will be included in the UK Corporate Governance Code, which operates on a "comply or explain" basis.

Those companies that face significant shareholder opposition to executive pay packages will be named and shamed on what will be the world's first such public register.

Paul Drechsler, president of lobby group Confederation of British Industry President, welcomed the move.

"Good corporate governance is an essential ingredient of business performance and the bedrock of trust between business and society. We know that how companies act and behave determines the way people think about business.

"Companies take this seriously and we look forward to working closely with the government to ensure the UK maintains its reputation as a global leader in this field and as a primary location for international investment. The CBI is very clear that the unacceptable behaviour of a few firms does not reflect the high standards and responsible behaviour of the vast majority of companies."

Unite union, however, has slammed the move, warning the proposals will not achieve the change needed to bridge the gap between "excessive boardroom rewards and meagre wages for workers".

"The UK is one of the most unequal developed economies," says general secretary Len McCluskey. "Too many at the top enjoy eye-wateringly high salaries and rewards like gold-plated pensions while the workers who have helped make them so rich struggle more and more to make ends meet. 

"Yes, absolutely something must be done to bring some sanity and justice to wages in this country. What is being proposed today will not do that. It will not address the wage crisis working people are enduring.

"If the government is serious about redressing the imbalance then it must support collective bargaining and stop decrying trade union members as somehow the 'enemy of the state'."