July 19, 2016 / 11:07 PM / 3 years ago

Watchdog says workers on boards may fixate on bosses pay

LONDON (Reuters) - Should employee representatives be appointed to the boards of companies in Britain they must avoid fixating on executive pay and think about wider issues like improving standards of behaviour, a UK regulator said on Wednesday.

Storm clouds are seen above the Canary Wharf financial district in London, Britain, August 3, 2010. REUTERS/Greg Bos/File Photo

Britain’s new prime minister, Theresa May, wants changes in the way companies are governed, such as by having worker and consumer representatives on boards.

Win Bischoff, chairman of the Financial Reporting Council which polices corporate governance through a voluntary code, any employee representatives should think about broad matters such as whether the right strategy and culture were being pursued.

“It would be very sad if a worker representative on the board would only look at pay,” Bischoff told Reuters.

“We have always espoused diversity, not just in gender, and if that includes worker representatives one day then that is something parliament can decide. It can be accommodated,” Bischoff said. “I don’t know if it would help improve culture.”

He was speaking as the FRC published a report on how good corporate culture leads to long-term success. It will help the watchdog update its “Guidance on Board Effectiveness”.

“Culture is an attitude that boards need to have. Perhaps we have focussed too much on financial performance and the strategy that gets us there, rather than on wider aspects that boards should be involved in,” Bischoff said.

The report said boards should guard against narrow thinking, dominant chief executives and how long they have been in the job.

They should also be vigilant about leadership “arrogance”, pressure to meet overambitious targets, lack of openness to challenge, tolerance of minor code breaches by star employees, lack of diversity, and hierarchical attitudes.

It avoids proposing a culture template, saying it is up to each company to define what is good culture.

Shareholders are paying more attention to what goes on at companies they own, though they themselves should also look at their own culture, the report said.

The cost of getting culture wrong is climbing.

“Intangible assets such as intellectual property, customer base and brand now account for over 80 per cent of total corporate value, compared to under 20 per cent 40 years ago. This shift magnifies the impact on total value when a reputational crisis occurs,” the report added.

Editing by Mark Heinrich

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