House of Lords Library

Corporate Sector: Rights and Responsibilities

Published Thursday, December 1, 2016

This Library briefing provides information on corporate responsibility and proposals for reform to corporate governance rules.

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Ahead of the debate on 8 December 2016 on case for maintaining the balance between rights and responsibilities in the corporate sector, this Library briefing provides background information on corporate responsibility.

The term ‘corporate sector’ is used to describe that part of the UK economy which is made up of private sector companies. The total value of shares for companies on the FTSE 100, domiciled in the UK, in December 2014 was £1,727 billion. The UK private sector provides employment for over 26 million people, the majority of the UK work force. As such, the action of the corporate sector has a significant impact on society as a whole, in terms of economic growth, and employment.

Public Opinion

The role of the corporate sector in society has come under increased scrutiny since the 2008 financial crisis, and events such as the recent BHS pensions crisis and the Libor fixing scandal. While public opinion is positive towards businesses overall, levels of trust in the managers of big businesses is negative. When asked about what their areas of concern were, the public stated that they were concerned about issues including corporate tax avoidance and executive pay. Research by YouGov also found that, while business leaders were aware of some negative public attitudes towards UK businesses, there was disagreement about how business might best respond.

Role of Government

The role of government in encouraging the corporate sector to act in a responsible way has taken a variety of different forms. Both Conservative and Labour governments have sought to involve the corporate sector in a number of types of voluntary or partially voluntary activities. Governments have also sort to define corporate responsibility through legislation. Under the Companies Act 2006, directors of companies have a duty to behave in the interests of their shareholders, and to have regard for other issues such as long-term sustainability, the impact of decisions on employees and their impact on the environment.

Corporate Governance Reform

On 29 November 2016, the Department for Business, Energy and Industrial Strategy published a green paper entitled Corporate Governance Reform. This included proposals intended to: increase shareholder influence over executive pay; increase the influence of employees, customers and suppliers in corporate decision-making; and extend existing governance rules to apply to large privately held companies. The Labour Party, the Scottish National Party and the Liberal Democrats have criticised the proposals, arguing that they do not go far enough in improving the corporate governance system in the UK.

Lords Library notes LLN-2016-0064

Author: Edward Scott

Topics: Companies, Economic policy, Industrial relations, Industry, Regulation

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