Those doing their food shopping this weekend might not care but for the City last

Those doing their food shopping this weekend might not care, but for the City, last Wednesday’s announcement of a new chief executive at J Sainsbury was a big deal. The supermarket chain is desperately trying to find its way again in the grossly competitive food market, and a mammoth task awaits the newly appointed Justin King. She must be seen to promote best corporate governance, but go too far and she and the Government will be branded as anti-business.. Rover hit the headlines after it emerged that £12.95m had been paid into a trust to benefit executives and their families, while the car-maker’s pension fund has a £73m deficit.”The only thing I am worried about is that people are trying to make trouble for a company that is important to my West Midlands constit- uency. I know the unions have been in talks with the Phoenix group [the Rover holding company]. “The approach we have tried to take is to establish principles not rules. It is about opening up transparency and using that as a lever for change, rather than legislation.

The process of the Government shining the light [on directors' pay] has led the CBI and others to develop codes of practice, which I doubt would have happened if the spotlight hadn’t been turned on.”But the MP for Redditch isn’t entirely happy that the spotlight is shining on one of the big employers close to her constituency. I am happy these discussions are happening.”On the specific issue of the money paid into the trust, Smith says: “I don’t think it is helpful for me to comment on that.” But she adds: “What I am concerned about is that people who never thought that Phoenix should be a success want to make trouble now.”The Rover case demonstrates the fine line Smith must tread. These included legislation to limit the length of contracts and establishing a stronger link between pay and performance.Again, Smith hints that the consultation may not lead to new laws. “Quite understandably, the people in my constituency take a dim view of directors leaving companies in a mess, but leaving with a large payoff,” says Smith. “Why does this matter? Answer: because we have a lot of good businesses in the country and we need to build a good business regime that all of us have faith in.”The consultation document raised various radical ideas to curb “golden parachutes” for departing executives. Legislation, for example, to force institutions to vote at AGMs is unlikely to be included in the second Bill.

“My instinct is that we should open up a system that promotes good behaviour before we look to mandatory voting.”Early next year, the Govern- ment will publish its response to its consultation on executive rewards for failure. They must actively engage in changing the management.”She hints that one idea is the introduction of new rules to force investors to disclose their voting records: “Anything that helps us get transparency of information into the system is a good thing.”But Smith is careful not to go too far. Smith says: “If we are not getting engagement in voting, that is bad for business. If a company is badly managed then [institutions] need go beyond either sticking with it in an uncritical manner or moving [their money] to another company. But some of this goodwill could evaporate when details of the next tranche of reforms begin to emerge for inclusion in a second Bill, perhaps next year. This will address some long-established City and corporate practices.One issue is shareholder voting and the patchy institutional turnout at most annual general meetings.

The accounting pro- fession is still spooked by the demise of Enron’s auditor, Andersen. UK auditors have lobbied hard to have a cap on their liabilities, but Smith says this won’t be included in the Bill.”Given that there are different views as to whether auditors should be able to limit their liability, and because there are links to directors’ liabilities, then this is something we should consider as part of the longer-term company law reform,” adds Smith.On Monday, the 41-year-old minister attended her first CBI conference, and her approach- able style pleased many delegates. But Smith reveals that that they will come in two parts.The first, due on Wednesday, will give investigators and auditors new powers to scrutinise companies suspected of dodgy corporate practice. Central to this will be the Financial Reporting Review Panel, until recently a little-known body that has been beefed up and will, for the first time, work with the Inland Revenue on cases of suspect accounting.