Beckett climbs down over threat of corporate governance legislation

The Government yesterday ruled out introducing legislation to improve corporate governance standards in Britain's boardrooms for the remainder of this Parliament.

Margaret Beckett, President of the Board of Trade, said she preferred to encourage best practice rather than impose fresh laws.

Her statement effectively rules out any moves to force companies to obtain shareholder approval for boardroom pay packages or require institutional investors to use their votes at annual meetings until 2002 at the earliest.

Any changes to corporate governance legislation will be incorporated into the outcome of a major review of company law launched yesterday. But this review will take three years to complete and will not result in a new Companies Act until the next Parliament.

Outlining her response to the Hampel committee on corporate governance, Mrs Beckett said she expected shareholders to make a "step change" this year in they way they exercised their stewardship of companies.

Companies, she told a conference organised by corporate governance watchdog PIRC, needed to be more transparent and accountable to all parties with an interest in the business, not just shareholders.

But she stressed that self-regulation was the preferred route, saying: "There are those who would say that the Government has a responsibility to legislate for good corporate governance. However, while the legal system can be used to enforce aspects of best practice, I believe that the very best will adopt even better practice because they see its value and will do so more readily of their own accord than if it is forced on them."

The root-and-branch review of company law will be the first since 1948 and will seek to modernise legislation still based largely on the framework put in place 150 years ago by the Victorians.

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