171. Responsibility for the wider business environment and culture is shared among Government, regulators and, of course, business itself. Business culture is set primarily by board members, who must act in accordance with duties set out in section 172 of the Companies Act 2006. Whether or not this law turns out to have been breached by Carillion's directors, this case indicates that it is an inadequate influence on corporate behaviour. There is no realistic chance of shareholders bringing actions against board members for breach of their duties, given the impact such action would have on the share price.486 In its report on Corporate Governance, the former BEIS Committee flagged up the ineffectiveness of section 172, but also recognised the difficulties of achieving sufficient legal clarity to influence decision making in the boardroom without presenting an unreasonable degree of legal exposure.487 It advocated more specific and accurate reporting on the fulfilment of section 172 duties, combined with robust enforcement. The Government has accepted this recommendation but the necessary regulations required to implement the changes have still not been laid before Parliament.
172. Whilst the UK has in many respects an enviable system of corporate governance that helps to attract investment from around the world, too often the high-profile company failings exposed recently have arisen from rotten corporate cultures. We came across the systematic exploitation of workers, and inadequate rights that are meant to protect them, by some companies in our joint work on the Taylor Review of modern working practices.488 Examples of unjustified executive pay are by no means confined to Carillion, nor is the poor treatment of suppliers. Effective corporate governance is required to ensure responsible business ownership and to protect workers: it should not be left to the courts to clear up the corporate mess.
173. The Government has already begun to respond to some of these lessons, through the amendments to directors' duties we have described, and to insolvency law. The White Paper on Insolvency and Corporate Governance published in March 2018 directly addresses some of the issues that our predecessor Committees raised in relation to BHS, and some relevant to the collapse of Carillion. These include proposals to:
a) Strengthen governance, accountability and internal controls within complex company structures;
b) Improve transparency around the payment of dividends and the circumstances in which they can be paid;
c) Improve the awareness of directors about the use of professional independent advisors;
d) Better protect supply chains and other creditors whilst preserving the primacy of the interests of shareholders.489
We welcome the Government's consultation on implementing some technical reforms arising from recent company collapses. However, we do not believe that these changes, even if successfully enacted, would have prevented the corporate failures we have seen, nor tackle some of the systemic weaknesses in our corporate frameworks that enable these periodic disasters to occur.
174. The BEIS Committee is currently looking at different aspects of corporate governance, starting with action to improve the gender pay gap and to curb unjustifiably high executive pay. It plans to revisit the implementation by Government and regulators of some of the major lessons arising from the demise of BHS, Carillion and other corporate failures and to look at the extent to which corporate law supports the Government's industrial strategy, not least in respect of takeovers.
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486 Kiltearn Partners report that they were interested in pursuing legal action against board members in respect of the liability of issuers in connection with published information, under section 90A and Schedule 10A, Part 2 of the Financial Services and Markets Act 2000.
487 Business, Energy and Industrial Strategy Committee, Third Report of Session 2016-17, Corporate Governance, HC 702, April 2017, para 25-31
488 Work and Pensions and Business, Energy and Industrial Strategy select committees, A framework for modern employment, HC 352, November 2017
489 Department for Business, Energy and Industrial Strategy, Insolvency and Corporate Governance, March 2018, p 6