Saturday, 21 September 2013

Labour, responsible capitalism and corporate governance

The fact that Labour has kicked off a debate about 'responsible capitalism' is one of the most interesting things that has happened on the centre left for some time. Issues that were not discussed for a long time are now back in play. My interest, as always, is on the elements of the discussion that relate to things like company ownership, corporate governance, pensions reform etc.

As people will be aware, Labour is committed on paper to employee representation on remuneration committees, which, given the sterile debate in mainstream corporate governance here, is regarded as 'radical' by many people in my corner of the world. I say it's a paper commitment, as until we see Labour in government and taking the proposal forward we have to be wary of possible backsliding (because there is likely to be a wave of GC100-style lobbying against it).

That said, it should be noted how often this policy is referred to and by whom. Obviously Ed has spoken about it, and on the policy circuit I have heard several shadow BIS ministers reaffirm it without any qualification. Just in the last couple of days I have seen various people, such as Jon Cruddas, write or talk about it. I assume Labour has already road-tested the policy with business people (and had largely negative feedback), so the fact that the leader and shadow ministers still regularly mention it is hopefully a signal of intent.

More generally, this (relatively small) policy commitment has a background of renewed interest within Labour circles in corporate governance as a political, rather than technical, concern. The early Blue Labour emphasis on co-determination came first, but a number of policy groups are now actively considering corporate governance reform, albeit as part of wider analyses (of workplace democracy/empowerment, addressing low pay, rebalancing the economy etc). I think I'm on pretty safe turf to say most people looking at these issues think putting employees on rem comms is ok, but broader employee representation is what Labour should really be aiming at. As I've blogged before, I agree. If we're going to shed blood reforming corporate governance, we might as well make it worthwhile fight. Putting employees on rem comms only now seems to me like an enormous missed opportunity.

It is worth noting, too, that there is some discussion emerging about the role of shareholders and some of this is quite smart. Sonia Sodha has a really interesting piece in the All Of Our Business publication that came out with the latest Fabian Review. What I like about it is the recognition of how shareholder capitalism really works - most 'shareholders' are intermediaries (asset mangers) whose interests may be rather more short term than those of either companies or end asset owners. In practice, she says, it looks more like 'corporate management capitalism' than accountability to shareholders and is also (rightly) sceptical about the practical impact of the 'enlightened shareholder value' language in the Companies Act 2006. In terms of reforms, she talks about both putting employees on boards and giving greater voice to long-term shareholders through enhanced voting rights but also of the need for collective representation of employee, saver and consumer interests. I think there is something worth exploring here - I have wondered whether a sort of 'Beneficiaries Association' could be established to represent ordinary punters' interests as shareholders (and employees?).

That Fabian publication is also worth a read because it has some polling on various potential 'responsible capitalism' policies and how they relate to respondents' own interests. Just under half (49%) of those polled say that putting employees on boards could improve their own "living standards and future prospects", with very few (7%, there's your Right-wing libertarian vote no doubt!) saying it make it worse. That's not bad at all, though slightly more (53%) back widening directors' duties to require them to consider social/environmental/community concerns. (As an aside I note that the editorial also takes it for granted that "Companies should serve the interests of a wider group of stakeholders, and not just shareholders...")

Maybe this will all come to nothing, and it will be "stakeholder capitalism" all over again. But it is clear that a proper debate about corporate governance - going beyond the narrow range allowed in the 'corporate governance community' - is underway within Labour. With the flaws of 'actually existing shareholder capitalism' exposed by the financial crisis, but the UK corporate governance establishment demonstrating a remarkable degree of complacency about the current regime, this could be an interesting time if Labour does win in 2015.

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