By Daniel Hunter

The Institute of Directors (IoD) has today (Monday) submitted its response to the Government’s discussion paper: Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business.

The consultation period for this paper ends today, and Vince Cable, the Business Secretary, will discuss proposed reforms in his speech to Liberal Democrat conference.

In its submission, the IoD welcomes government proposals to create a central registry of the beneficial owners of UK companies which should be visible to the public.

However, it is concerned that several other proposed reforms place an excessive burden on smaller companies and their directors. This sends an unfortunate message to entrepreneurs and small businesses, particularly in view of the need for SMEs to play a significant role in underpinning future economic growth.

Specific proposals which the IoD opposes include:

· That after a certain number of company failures, a director should be presumed to be unfit to practice and should be automatically disqualified. The IoD view is that company failure is an inevitable aspect of a market economy, and should not of itself be penalised (in the absence of proven wrong-doing).

· Giving liquidators the right to sell or assign financial claims against the directors of failed companies to debt collectors or other agents unconnected with the company. Such a punitive approach will do little to encourage experienced business people to offer their time and experience to the boards of small and medium-sized companies.

However, the IoD supports proposals aimed at improving corporate behaviour through a greater emphasis on the training of directors. In particular, the idea of offering disqualified directors the option of undertaking training in return for a reduced disqualification period is an innovative policy development.

“We agree with the Government that good corporate governance is inherently linked to trust and confidence in our capitalist system, and that this trust has been severely tested by the economic problems of the last five years," Dr. Roger Barker, Director of Corporate Governance at the IoD, said.

“However, some of the proposals in the discussion paper are suggestive of anti-enterprise attitudes towards business failure. They also take an excessively punitive approach towards the directors of failed companies.

“We recognise that directors should be held accountable for their actions. But the loading of excessive risks and liabilities onto directors will affect attitudes about the viability of involvement on corporate boards, with negative implications for UK competitiveness and growth prospects.”

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