In a speech made in 2016, Theresa May said:
…And I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough. So if I’m Prime Minister, we’re going to change that system – and we’re going to have not just consumers represented on company boards, but employees as well…
Well, she certainly correctly diagnosed the problem of a narrow clique governing UK corporations, and of that clique having failed to deliver, as exemplified by the financial crisis and the unjustifiable ratcheting up of executive pay over recent decades.
So, we had reason to be hopeful when the government launched a consultation on corporate governance in February this year. Our hopes were further raised when Conservative MP and Treasury committee member, Chris Philp, published a paper advocating shareholder committees, broadly in line with ShareSoc’s own recommendations. You can read ShareSoc’s response to the consultation here.
Our short term hopes were dashed, however, when the government published its conclusions from the consultation earlier this week. On the shareholder committees proposal the government states:
1.61 On the Shareholder Committee option, the Government recognises the concerns of companies, many investors and other respondents that this option would be difficult to implement practically and could moreover undermine the UK’s unitary board system.
So, what is the justification for this apparent U-turn?
1.14 On the ‘shareholder committee’ option, three in ten of those who commented on it saw merit in the idea. It was supported predominantly by retail shareholder groups, by some private individuals and by some wider society groups. Their rationale was that it would drive more informed and pro-active stewardship of companies by major investors, augmented by a retail investor perspective, and that the Swedish model it is based on could be adapted to fit the UK’s more fragmented and international shareholder base.
1.15 The option was opposed by institutional investors, companies, most business representative bodies, some think-tanks and some private individuals. A common argument against was that it would be difficult to find a group of investors that could represent the views of the hundreds of investors typically holding shares in any large quoted company. Some smaller institutional investors expressed concern that such committees would entrench large investors, making it harder for smaller investors to have a say on the running of companies. Both companies and investors expressed concern that a shareholder committee with strategic oversight of a company board and advance say on draft pay and nomination proposals would blur the lines between stewardship and executive decision-making, and undermine the UK’s unitary board model.
I.E. whilst the concept was supported by retail investors and wider society groups, the vested interests of powerful groups such as the corporates and fund managers were given priority. It is hard to think of a more blatant betrayal of promises!
Whilst the vested interests may have won this battle, ShareSoc will keep fighting, by exposing this hypocrisy and keeping up the pressure for change.
We will not give up the fight!