Reward long-term investors with tax credits, top City figure urges

Investors in companies with workers and customers on their boards could be rewarded with tax credits for their long-term backing, under a plan proposed by one of the City’s leading corporate governance experts.

In a speech to a parliamentary group on Wednesday morning, Philip Augar, a former director of TSB Banking Group, argued that a dividend tax credit could be handed to shareholders who have been on compliant companies' share registers for at least five years.

The move would encourage investors to take a longer term view and would be a less draconian way of achieving wholesale reforms to corporate behaviour than changing legislation, Mr Augar is understood to have told the audience of MPs (BSE: MPSLTD.BO - news) , peers and City figures.

According to one person who attended Mr Augar's speech, he presented a further option of amending a section of the 2006 Companies Act, which requires company directors to "promote the success of the company for the benefit of its members" but only to "have regard to employees, customers, suppliers and the wider community".

Mr Augar, who is finalising a book about Barclays (LSE: BARC.L - news) , is said to have argued that this definition "reinforced short-term shareholder value maximization, making UK company law's bias to shareholders more extreme even than in the US".

His proposal to widen the obligations of company directors "would restore balance", given that "the public policy objective - to create an environment in which business can prosper for the benefit of wider society - is not being achieved through this shareholder-centric model", Mr Augar told the all-party parliamentary group on corporate governance.

His proposals for reform come ahead of a green paper to be published in the coming weeks in which ministers will set out an agenda for potentially radical reforms of corporate governance and boardroom pay practices.

Theresa May devoted part of her speech to the Conservative Party conference to the subject of corporate behaviour, and repeated a pledge to address perceptions of egregious conduct.

While she did not name him explicitly, Mrs May referred obliquely to Sir Philip Green, the former BHS owner, when she lambasted company directors who paid themselves huge dividends while knowing that their pension schemes were "about to go bust".

An overhaul of executive pay practices is now firmly on the agenda of major City institutions, with Hermes Investment Management and Legal & General Investment Management among those publishing new reform ideas in recent weeks.

The Business, Innovation and Skills select committee has also launched a corporate governance probe following the failure of BHS and rows involving shareholders at BP and Sports Direct International (Other OTC: SDIPF - news) .