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Improving Corporate Governance and Company Behaviours – public procurement has a role

Wednesday November 30th, 2016

The Government’s recently published Green Paper on Corporate Governance is widely regarded as disappointing by many in the public sector and trade unions. Whilst there are some important and positive proposals for improving accountability and transparency, especially in respect of senior executive pay, the overall set of proposals falls short of what many had hoped for and even what the Government had trailed.

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John Tizard

Responsible business matters. To be responsible, business requires responsible and effective governance. It is unlikely that voluntary action will be enough to persuade many companies to address issues such as the ratio between the highest remuneration and the lowest; low pay and insecure contracts such as ‘zero hours contracts’; involving trade unions and the workforce in key decisions; and even appointing employee representatives to their boards.

The Government’s Green Paper is out for consultation over the next three months and it is important that the case for a more radical set of reforms is made by as many people and organisations as possible.

Meanwhile, as I and others have long argued in Government Opportunities and elsewhere, the public sector can use public procurement to drive good practice and set clear expectations for providers of goods and services.

I would suggest that public sector leaders – politicians and executives, but especially politicians – agree some basic standards of behaviour that they would require any company contracting with their organisation to meet.

These could include, for example, providers:

  • paying as a minimum for all staff the Living Wage rather than the Government’s National Living Wage
  • ensuring that all employees have access to decent pensions and usually above the statutory minimum
  • not ever using involuntary ‘zero hours contracts’
  • offering permanent contracts for all staff and avoiding ‘self-employment’ arrangements accept for genuine short-term consultants
  • having industry-best professional development programmes for employees
  • demonstrating high-standard employee diversity policies and practices
  • establishing a set ratio for the highest remuneration compared to both the median and the lowest remuneration within the company (and for this to include all aspects and elements of remuneration, not solely salaries) with the procuring body indicating its expected ratios
  • providing details of bonus and other incentive schemes for senior managers and executives (as these can drive company behaviour)
  • giving consideration to employee board members
  • having trade union recognition and providing trade union facilities
  • providing transparency of ownership, including structures
  • demonstrating evidence of fair tax policies and practices

Different public sector organisations may wish to adopt their own criteria and standards and to bespoke some of these to local circumstances. They may wish to integrate some of these requirements with their wider social value objectives for their contracts. They may also wish to consider the appropriateness of such standards depending on the size and nature of contracts. They may wish to consider the impact of the greater demand for information and compliance on smaller start-up companies, social enterprises and charitable bodies; but in my opinion such an approach and similar standards should apply to all bodies that contract with the public sector and take advantage of public revenue.

The Government can lead by example through strengthening its corporate reforms and meanwhile using its very significant public procurement spend to drive behaviour change and reform. And so can local government and the wider public sector.

If a company is going to benefit from public sector contracts as a minimum it should match the public sector in terms of governance, accountability and transparency.

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