Tories renege on workers’ voice
Teresa May promised workers on company boards in her acceptance speech. The back-track wasn’t long in coming
We have heard a lot about the Prime Minister’s policy on corporate governance, but the more they said, the less we have actually known.
When the Prime Minister launched her leadership bid she said she wanted a change in the way big business is governed. She said: “later this year we will publish our plans to have not just consumers represented on company boards, but workers as well. Because we are the party of workers.”
But it seems there has been a change of mind because just weeks ago we heard it was not about putting workers on boards but about finding a model that works for everyone. Perhaps it is the same model as for Brexit: to have their cake and eat it…
In November parliament debated the fate of Sir Philip Green. I said that the most shocking thing about the whole affair is that everything he did was legal. A key question today is whether anything that has been proposed would change that: do the proposals pass the BHS test?
Bringing private companies into the PLC rule book is a move so targeted at a particular series of events that I expect it will come to be known as the BHS law. However, had the proposals outlined by the Secretary of State been in place six months ago I am not wholly convinced we would have avoided the corporate governance scandals of last summer. To force private companies to abide by the corporate governance code will do little unless the code is tightened. BHS may have been a private company, but Sports Direct is not, and we know what has gone on there.
To strengthen the power of boards to give oversight on how companies are run or their remuneration structures will change little unless the make-up of those boards is also shaken up, yet we all know what has happened to the Government’s commitment to put a diversity of voices on boards.
For too long our economy has suffered from an inherent short-termism—a short-termism that sees the long-term health of a company being sacrificed for a quick buck, and that all too often obscures the link between rewards and long-term performance. In 1970, £10 in every £100 went on dividends; now, it is between £60 and £70. It is employees and investment that have lost out from this shift.
We see that in our pitiful investment and productivity rates. Britain now languishes 33rd out of the 35 OECD countries on investment rates. Seen in this light, it is no surprise that it takes British workers five days to produce what German workers produce in four—and we see this in the yawning gap between top pay and average pay: in the 10% increase in executive pay when workers are suffering 10 years of stagnant wages…
Corporate governance reform is not just about improving the image of our corporate sector or placating our innate sense of injustice at the lack of proportionality between the salaries of directors and their employees; nor is it just about fulfilling the wishes of the six out of 10 members of the public who, as TUC figures show, want to see workers on boards. These things matter, of course, but corporate governance reform is also about changing the way our companies, and therefore our economy, work.
The recasting of how our economy works is key to Britain’s success. Without more long-termism in our corporate practices, we will not be able to address the problems.