As I've discussed with many people out there in the Real World, there seems to be a resurgence of interest within the UK labour movement in issues relating to the goverance and ownership of companies. In a sense this shouldn't be a surprise, given the events of the past few years. But what is interesting, and makes me hopeful, is that Labour is starting to talk about these issues.
Ed's piece on responsible capitalism here is still short on details. In addition whilst it's nice that there is section on equity markets, it really doesn't say anything that Vince Cable hasn't already (and much of what Cable has said has been good). But I put this down to the need to plant your flag on territory, but leaving the policy ideas to others (especially given that they might blowup). The bigger deal, in my opinion, is that corporate governance reform is back on Labour's agenda as a policy area.
This is important. Much of the world that the UK governace community works in results from a big push in the 1990s. It's (almost) 20 years since the Cadbury committee, and in that period a fairly consistent framework has been applied. Despite Labour's brief flirtation with a 'stakeholder' model, essentially we settled on 'enlightened shareholder value'. When we were in power we improved company disclosure, gave shareholders more powers, pushed for more independent boards etc. This essentially reinforced a model of governance, and of the company, that drew a lot from economic theory and business text books, and turned away from Labour's historic position.
One of the reasons I enjoy going back and reading old books and reports is that they remind you how radically differentviews about corporate governance were. As I've blogged previously, Tony Crosland didn't think it was worth bothering with workers on the board, with the resulting diminution of the role of shareholders, because a) the unions were strong enough to have a say within companies and b) because shareholders didn't really play the role theory expected/desired of them. That was were moderate Labour thinking was on corporate governance back then.
In contrast, in power from 1997 we assumed that shareholders would indeed play the role of owners, because it was in their financial self-interest (enlightened or otherwise) to do so. Often the old argument was invoked that actually the "long term" interests of shareholders were not so very different to those of employees and other stakeholders. As such, the focus on disclosure and shareholder empowerment could actually further progressive causes. (I advocated this myself, though I now consider it pretty inaccurate.)
Post-crisis we can see that the prescriptions of 1990s vintage corporate governance didn't help a whole lot. Disclosure, more independent boards, greater shareholder powers etc didn't stop the banks from destroying themselves, no did it stop the upwards march of executive pay. Indeed, I obviously argue that the enormous emphasis on peformance-related pay has at best been counter-productive.
Since losing power in 2010, Labour has avoided saying much on corporate governance, so essentially one might conclude that our policy positions are where they were pre-election. In fact on issues like executive pay this would have seemed to be a fair conclusion, until recently. In supporting calls for more or better disclosure and greater shareholder powers we are again reinforcing the 1990s model. But... the decision to come out in favour of employees on remuneration committees opened the door a little. I suspect a number of people support this policy not because they expect that it will make a big difference in executive pay (though it might help) but because it legitimises the role of employees in corporate governance.
It's a shame that the Blue Labour debate got hung up on issues like immigration, because there is a lot of interesting stuff in it about business, and corporate governance. Essentially there's strong support for co-determination and approaches like it. This appears (to me) tied to the idea of re-establishing the value of labour. Why should an engineering business have to pay more attention to its shareholders than to skilled, long-standing staff that it employs? Why shouldn't labour and capital (!) both be represented in governance? This type of thinking seems to be starting to re-emerge within Labour.
There are risks here. We could look like we're going back to a different 1990s model - Rhineland capitalism. In just the time I've been interested in governance I've seen Germany be praised for its partnership approach, then be criticised for being insufficiently 'flexible' ('sclerotic' being the decriptor of choice for thumbnail sketches of Germany's approach to employment issues in the mid 2000s), and now undergoe a reappraisal. And no doubt some nutters on the Right will characterise any idea of employee represention in governance as "Soviet" or suchlike. But it would be a real shame if Labour doesn't at least explore governance issues more deeply, and instead restrict itself to small specific policies like remuneration committee reform.
And one thing I definitely think we should is start talking about reform of performance pay as a governance issue. The PwC report I blogged about recently is evidence of a shift in opinion. This has been bubbling away for two or three years now but I think could boil over. Reform of executive pay can be used to tackle the scale of reward and its relation to that for other employees, and it can be carried out under the banner of simplification. Given the PwC paper, I do wonder who would actually have a problem with Labour pushing for a scaling back of performance pay in the name of simplification. Finally, this could also be described in a sympathetic way, by acknowledging that business leaders don't only do it for the money, and are more trustworthy than the implication that they need carrots dangled in front of them to do their jobs well. I reckon we should just go for it.
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