The government, like every other one in living memory, is on a mission to reduce red tape for business. The former chancellor Rachel Reeves promised “a blitz on bureaucracy” and “pointless admin” and here comes the business department with a 12-week consultation on “modernising corporate reporting to support long-term economic growth”.
Never mind that cutting energy costs for business would, by an order of magnitude, do more to support growth than any bonfire of red tape ever will. The consultation is still worthwhile: clearing out accumulated clutter, exploring digital options and clarifying reporting “exemptions and exclusions” for small- and medium-sized companies could free up a bit of time for doing more business.
But two ideas in this burden-lifting exercise are terrible because they involve an unacceptable loss of transparency.
One is the idea of dropping annual shareholder votes on companies’ remuneration reports. The supposed justification is that, since a binding vote on a company’s overall remuneration policy would still be required on a three-yearly cycle, there is no point in having an annual advisory-only poll on how the policy has been implemented.
Such a weaselly idea could only have come from those FTSE 100 companies that resent scrutiny of their directors’ mega-bucks pay packages. Too bad: annual votes are a modest (and mostly ineffectual anyway) check on runaway boardroom rewards. Obliging the non-executives on the remuneration committee to justify their decisions to the outside world, in the knowledge the owners will vote, is a bare minimum requirement for retaining a bit of accountability in the system. If the chief executive has to squirm when, say, 30% of shareholders rebel, so be it. By rights, any reform ought to be in the other direction: it would be better to make the annual poll binding.
The government’s other bad proposal is to encourage the trend among quoted companies towards online-only annual shareholder meetings. It’s true that many such meetings struggle to attract attendances in double figures, so the desire to turn the thing into a glorified Teams call is vaguely understandable. But a well-established principle is at stake: even small investors in a listed company should have the right, once a year, to buttonhole the bosses and ask a question in the flesh.
The best solution in a digital age is hybrid meetings – let the shareholders decide if they wish to turn up or dial in. It is hardly an onerous requirement on the company to make a meeting room available. Again, one suspects the dead-hand of corporate affairs departments at work: with honourable exceptions, they don’t like the hassle of dealing with retail investors or campaign groups. Sorry, but that’s life.
One other piece of advice for the department: yes, it’s true that annual reports have grown monstrous in size – running to “98,000 words, longer than JRR Tolkien’s The Hobbit” on average, it complains. And, yes, burdensome reporting requirements explain part of the growth. But it’s also true that companies don’t help themselves by padding out their productions with acres of irrelevant corporate babble.
If, as the consultation says, annual reports are “a document primarily intended for investors and creditors”, make them easy to use. Part of the corporate instinct to write at Tolkien-like length stems, one suspects, is from fear of being accused of leaving anything out. The result, too often, is unreadable guff that doesn’t offer a concise account of the directors’ view of how the company is run and the risks and opportunities it faces.
By all means, reform some of the reporting burdens – there are probably plenty to go at. But don’t undermine the transparency offered by annual votes on pay and annual meetings. And don’t allow companies to use “regulatory requirements” as an excuse for boilerplate communication.
