With yesterday’s Queen’s Speech, the newly elected Government has outlined its legislative agenda for the Parliamentary session ahead.
Among the 30 Bills unveiled in the Gracious Address, there were a number of proposals that offer some clarity on the future direction of the UK’s approach to corporate governance. Namely, the Government indicated that it would reform audit and put in place a stronger audit regulator, introduce a new airline insolvency regime and strengthen the Government’s powers to intervene in mergers and acquisitions.
Over the last session, corporate governance had become a much-neglected area has the Government sought to focus limited Parliamentary time on Brexit. Whilst the Queen’s Speech, only offers something of an outline it’s certainly heartening to see the Government committing to a number of legislative reforms that ought to protect our internationally-respected corporate governance regime.
With yesterday’s speech, the Government committed to developing proposals on audit and establishing a stronger regulator with the power to reform the audit sector. The measures follow recommendations in a government-commissioned review into audit led by John Kingman, Chair of Legal & General, published in December 2018. At the time, we made clear that we largely agreed with Kingman’s findings arguing that there was a need to be tougher on audit and for a regulator with more teeth to act when necessary. We maintain this view, whilst holding that a such regulator would not necessarily be a good fit for either the Corporate Governance Code or the Stewardship Code. we believe that having corporate governance and investor stewardship regulated within the same body as statutory audit is a far from ideal approach. Governance codes represent an industry-led and ‘soft law’ approach to regulation – in contrast to the more robust approach that will be required from a statutory audit regulator
The Government also indicated that it will be moving ahead with proposed reforms for a special administration regime in the airline sector. The special administration regime for airlines would allow for them to support the needs of passengers post-insolvency and to keep the aircraft fleet flying long enough for passengers to be repatriated. Such reforms if implemented earlier could have eased the consequences of the collapse of Thomas Cook.
Finally, the Government also committed to introducing a National Security and Investment Bill to strengthen the Government’s powers to investigate and intervene in mergers and acquisitions. The proposed legislation reflects an international trend toward enhancing scrutiny around transactions with potential national security implications. We have some concerns that those powers could be excessively politicised thereby risking the UK's status as a leading destination for foreign investment and location for corporate headquarters and operations.
All in all, yesterday’s Queen’s Speech signalled a full and ambitious legislative agenda. However, we would have liked to have also seen the Government moving ahead with proposed reforms to Companies House which at present it simply lacks the statutory power or capability to verify the accuracy of the information it is provided. The Government has already developed a range of proposals to improve the functioning of Companies House, but it should now give Parliamentary time through which to enact the required primary legislation. The absence of any reference to Companies House in the Queens Speech would indicate that it is not a priority.
Ultimately, today’s Queen’s Speech shows that corporate governance can’t simply be neglected or else reforms pile up rather than being addressed. We look forward to engaging with Government and Parliament over the coming session to help shape this legalisation as it comes before the Commons and Lords.