When Theresa May was running for leader of the Conservative Party, she started her campaign with a speech in Birmingham. What happened while she was speaking has comprehensively upstaged what she had to say. But as a first indication of our new Prime Minister’s thinking it was significant. And quite a lot of what she had to say was about, of all things, company law.
(Credit:Foreign and Commonwealth Office via Wikimedia Commons)
It is not often that a big political speech by a big political player makes an issue of company law. Most of us work for companies, our pensions are invested in companies and all of us buy from companies, but how they are actually governed is usually seen as too mind-numbingly boring for us to pay attention to it. Which is a shame, because it was a big part of the 2008 smash, and of what has happened as we have tried to climb out of the hole we fell into.
When your headline is that “we can make Britain a country that works for everyone”, beginning with company law – the boring, technical stuff that really drives the economy – is a pleasingly pragmatic approach
May said three things which could indicate how companies will be run in future.
1. The first, and most ground-breaking, was that “we’re going to have not just consumers represented on company boards, but employees as well”.
If this was coming from the leader of the Labour Party, it might be unremarkable, but this is a Conservative Prime Minister speaking. Of course, it may be a Conservative Prime Minister who has noticed that the German economy isn’t doing too badly, and Germany has had employee representatives on the boards of many big companies since the early 1950s, and all companies employing more than 2000 people since 1972.
The German system is different from ours, but it sees workers as in collaboration with capital investors to produce advantage for both: profit and well-paid, secure jobs are not mutually exclusive. History suggests they may be right, but many British managers (and union leaders) still act as though workers and investors are hereditary enemies. British management’s collective resistance even to talking to the people who work for them, let alone giving them real power, might finally be facing a real challenge from ‘the party of enterprise’, as May described the Conservatives.
2. The second thing she said was that she would do something about “an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses”.
Executive pay has been a running sore for some time. Performance-related rewards (which are the biggest part of what senior managers get) seem to be designed so they are ‘earned’ even when the company loses money. The Chief Executive of publically-owned Lloyds, for example, got hundreds of thousands of shares in 2016 even though profits had gone down.
May suggested her government might give shareholders controls over these awards, such as legally binding votes. She presented this as being about the relationship between the CEO’s pay and the average worker’s.
But when looked at closely, this is less than it seems. The power will not be in the workers’ hands, but in investors’. In practice, that means fund managers, who have a track record of being relaxed about huge multiples of average earnings for senior managers.
The received wisdom in the City is that managers’ only duty is to create ‘shareholder value’: dividends and increased share prices. Nothing – literally nothing – else matters. Happy customers, contented workers and a clean environment are good if they contribute to shareholder value. If they reduce it, too bad. So shareholder control of boardroom pay will have little positive impact on employees.
3. The third thing May talked about was tax. She said she will “crack down on individual and corporate tax avoidance and evasion”.
Surprise, surprise. It would be hard to find a politician who would say anything else. But how?
She will want to encourage inward investment in the wake of Brexit, and global companies have an uncomfortable habit of going where life is easy, and cheap. She cited Amazon, Google and Starbucks. They don’t share her opinion that “you have a duty to put something back, you have a debt to your fellow citizens, you have a responsibility to pay your taxes”. Their managers believe they have a duty to shareholder value, which means a duty not to pay their taxes, if there is any legal way to avoid it. So Ireland, here we come.
So perhaps the policy she should be adopting is George Osborne’s plan to cut corporation tax rates to nearly Irish levels. She said nothing about this, but it might have more impact than ‘crack down’ rhetoric.
Overall, this was an interesting theme to start a new administration. When your headline is that “we can make Britain a country that works for everyone”, beginning with company law – the boring, technical stuff that really drives the economy – is a pleasingly pragmatic approach.