Back in July – just hours before Andrea Leadsom pulled out of the leadership race – Theresa May made her big pitch to become Prime Minister with an emotive speech in Birmingham putting workers “centre-stage of the economy”.
It was rabble-rousing rhetoric: May wanted workers and consumers to sit on company boards, shareholders to be given proper powers to block exorbitant pay and for foreigners to be stopped from gobbling up the best and brightest of British companies.
“If I’m Prime Minister, we’re going to have not just consumers represented on company boards, but employees as well… Under my leadership, the Conservative Party will put itself – completely, absolutely, unequivocally – at the service of ordinary, working people. It is why we will make Britain a country that works for everyone.”
In one smart swoop, May had killed off Osbornomics, the irritating ‘we are all in this together’ platitude of the former Chancellor and made her land grab for the Tories to be the workers party.
This was thoughtful stuff; flutters of Joseph Chamberlain and all that. Certainly exciting enough for some of us to ask whether May was perhaps a closet red Tory; that breed of centre-right conservative who blended Benjamin Disraeli’s One Nation political philosophy with Canadian Toryism – a mix of communitarian politics and noblesse oblige.
Jump forward a few months, and May is looking more yellow than red. Like Donald Trump’s plan for a Mexican wall, May’s proposal for workers and consumers on boards have crumbled. Indeed, the much-anticipated green paper on corporate governance published recently by the Department on Business, Energy and Industrial Strategy is deeply disappointing and a missed opportunity to shake-up board ‘groupthink,’ and has little new to say on pay too.
Rather than workers on board, the BEIS paper is suggesting advisory panels to reflect stakeholders interests as well as giving existing non-executive directors responsibilities to express the voices of employees and consumers.
May and Greg Clarke, the BEIS secretary of state, are said to have dropped the workers plan because of lobbying from business leaders. As you would expect, Clarke denies backtracking, arguing instead the government does not want to push through changes which would move UK boards away from their unitary structure because they work so well. Clarke is right – the UK’s unitary board structure works extremely efficiently and is the envy of the world, bar a scandal or too. But it is also baloney for Clarke to suggest that bringing workers on board would alter that composition, particularly as the green paper is proposing that investors should join boards too. Odd that.
Changing the unitary structure could only happen if the government were proposing a European style two-tier structure, one where companies operate a supervisory board made up of workers and investors, which reports into the top management board.
But no one is proposing such changes, so you can only assume Clarke is muddled in his thinking. Indeed, there is no pressure in UK for introducing such two-tier structures. Quite the reverse – even the Europeans are looking at reforming their company structures. As they have found out after Germany’s VW and Sweden’s SCA scandals, even their supposedly more open two-tier structure is flawed.
It’s also hard to see too why there has been so much carping about how difficult it would be for companies to find the most qualified workers to sit on boards.
Why would these board appointments be tougher from any others? Selecting the ‘worker’ director would have to undergo the same rigorous training in strategy, risk and knowledge of financial accounts as any other board member. Choosing the right directors is always tough and companies don’t always get it right either; RBS’s Sir Fred Goodwin had some of the brightest brains on his board in Sir Steve Robson and Sir Tom McKillop, who was chairman, but even they could not see what was happening.
Instead of dropping the idea stone dead, May should have launched a voluntary proposal for companies to consider bringing senior workers on board, rather as the Coalition did with encouraging boards to increase the number of female non-executive directors.
So why didn’t May go ahead? Was her Birmingham rallying cry just smart rhetoric to win over voters fed up with seeing big business getting away with appalling behaviour? Or was May got at by the lobbying? I suspect Frances O’Grady, head of the TUC, got at the real reason when she said there is an element of snobbery about whether workers can cut it in the board room.
It’s a pity but now we will probably get the worst of all worlds; NEDs with token authority for worker and consumer ‘voices’ and advisory panels which could easily end up being a dumping ground for complaints.
What is so ironic about these new latest moves to improve board governance is that they have been prompted by the government’s desire to show it is stamping down on the baddies; whether its the bankers for their role in the financial crash or more recently, Sir Philip Green ripping off pensioners at BHS and Mike Ashley treating his staff badly at Sports Direct.
Yet the government has the powers to punish such behaviour; it’s called Section 172 of the Companies Act which states that a director has a duty to promote the success of a company and, critically, act with regard to the “interests of the company’s employees” as well as suppliers, customers and others. It’s astonishing that these rules are rarely enforced; partly because it’s not clear who should regulate them – the Financial Reporting Council or the BEIS.
As the PM is not bold enough to go through with her original idea to encourage more board diversity, she could ensure the right authorities know what powers they have, and for them to be flexed and directors punished. That would keep board directors on their toes more than any changes to their structure.