Whether we like it or not, companies play an ever-more important role in the delivery of products and services to the public. As the state has retreated from some functions, companies have filled the void.

Because of their expanded public role it is extremely important that companies are accountable and transparent. In the same way that government is accountable to the electorate, companies should be accountable to their owners.

The reality is that these days the electorate and the ultimate owners of business are largely the same people. Most shares in UK companies are now held by institutional investors, the pension funds and insurance companies investing the savings of millions of working people. This means that the public is exposed to any failings within companies providing services on two levels – as the consumers of those services and as investors in the business. Bad management can result in individuals receiving both a poor service and a lower pension. 

It is with this in mind that the TUC has recently revised and updated its shareholder voting and engagement guidelines. These guidelines are intended to both set out the TUC’s policy positions on a range of corporate governance issues, and to provide union members who are pension fund trustees with a framework for creating a corporate governance policy for their own scheme. We also hope they will help companies have a clearer understanding of where unions stand in corporate governance debates.

The guidelines cover a range of issues including board structure, directors’ pay and pensions, and corporate social responsibility. Not surprisingly, much attention has already been focused on the pay and pensions, so it is worth explaining the TUC’s views on these areas.

There are several reasons why executive remuneration is an important issue. Firstly, from the perspective of work organisation, one has to question the impact on workforce morale when there are continued cases of company directors increasing their own pay significantly while holding it back for other employees. Secondly, we believe that inability to exercise sensible judgment and restraint in the area of remuneration may well be indicative of general poor governance.

There also needs to be transparency on pensions. One of the least acceptable facets of the pensions system in the UK is the increasing disparity between the pension provision for directors and that offered to employees. Often there are differences in treatment even within the same company. Directors typically have more generous accrual rates in final salary schemes and much higher contribution rates in money purchase schemes.

We believe directors’ pensions will become an even bigger governance issue in the future. Certainly corporate governance staff within fund management houses are concerned that pension enhancements are sometimes being used as a way of offsetting legitimate investor pressure on other elements of remuneration.

Of course unions are not just interested in company disclosure on corporate governance issues. We would also like to see comprehensive reporting on social responsibility, covering areas such as environmental management and workplace issues. We believe that businesses which embrace corporate social responsibility are more acceptable to the public and more likely to be successful in the longer term, making them a better investment for pension funds and other investors.

The TUC looks forward to greater disclosure by companies on corporate social responsibility issues following the introduction of operating and financial reviews, and we hope our guidelines will give companies some idea of the kind of disclosure unions would like to see. For example, in relation to employees we recommend that companies report on the following key areas – diversity and work/life balance, training and development, employee representation and involvement, health and safety, pay and pensions.

Finally we recognise that greater transparency and openness is not a one-way street. Companies should be able to expect the same from their owners too. By publishing our guidelines we hope we have given companies greater information.

The TUC also believes it is time that the votes cast by institutional investors at companies’ AGMs were made public. A number of large investors – both fund managers and pension funds – already disclose their voting records publicly, but many do not. This should change. The TUC’s own pension fund makes its voting record public, we see no reason why others cannot do the same.