UK governance revamp targets dividends and bonuses

Big companies with threadbare cash reserves will be banned from paying dividends and executive bonuses in an overhaul of UK corporate governance to be announced on Thursday.

Company directors will also face fines, suspensions and bonus clawbacks if their businesses make big accounting errors or are exposed to fraud, according to reports. The long-delayed changes will be published in a white paper compiled after scandals at Carillion, BHS, Patisserie Valerie and others.

The paper refers to "high-profile examples of paying out significant dividends shortly before profit warnings and, in some cases, insolvency", according to the Financial Times. The comment is likely to be linked to the collapse of Carillion in 2018 after the company paid a record dividend and bonuses.

The scandals raised questions about audits conducted by the big four accountants Deloitte, KPMG, EY and PwC, which have a stranglehold on audits for large UK companies, and the Financial Reporting Council, the accounting regulator.

Kwasi Kwarteng, the business secretary, said: "When big companies go bust the effects are felt far and wide with job losses and the British taxpayer picking up the tab. It's clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain's audit regime needs to be modernised."

The big four firms are already splitting off their audit practices to remove conflicts of interest between checking clients' accounts and doing more profitable consultancy work. A new watchdog, the Audit, Reporting and Governance Authority will have powers to investigate wrongdoing by directors and scrutinise accounting firms.

Roger Barker, head of policy at the Institute of Directors, said: "Although it is appropriate for a new audit regulator to consider how director accountability can be improved, the collective responsibility of the board for corporate reporting must be maintained. Furthermore, although director accountability needs to be enhanced, it would be counterproductive if the legal and financial liabilities piled onto directors make the role excessively unattractive or risky."