Ministers are preparing to back the idea of extending the governance code for stock market-listed companies to large privately-owned businesses, in response to public anger at a string of scandals including the collapse of BHS.
The proposal to extend the City’s governance code to the private sphere was first put forward by the Financial Reporting Council, an independent body that regulates City behaviour, including adherence to corporate behaviour codes for public companies.
The code for public companies was introduced in the 1990s in the wake of the Polly Peck scandal, when the business empire of disgraced tycoon Asil Nadir folded with debts of £1.3bn. The code recommends that public companies are overseen by a board of directors, the majority of whom are independent from the company and its executives. Other aspects of the code are designed to ensure proper scrutiny of a company’s executives and their pay, as well as to bolster accountability to shareholders.
Ministers are expected to suggest the FRC also be invited to oversee governance rules for private firms, which could include well known companies such as JCB and Dyson as well as firms with large workforces that have been acquired by private equity funds, often using large amounts of borrowings. Theresa May is under pressure to prevent further scandals such as the failure of BHS, the retailer whose collapse has sparked criticism from MPs of its former owner, Sir Phillip Green.