Here are some of the views I've expressed on here over the years that sum up where I'm at:
- Shareholders are not "owners" of companies, either de jure or de facto, and have no inherent right to primacy in the governance of companies.
- Shareholders are also not generally effective "stewards" of companies, despite repeated public policy initiatives to encourage better oversight.
- Shareholder and other stakeholder interests within the firm can and do conflict - labour costs are an obvious area, but also worker representation on boards.
- "Responsible investment" (RI) in practice leans heavily towards G and E issues, and is generally very weak on labour/workplace issues.
- RI is shot through with class biases - i.e. far more interest in gender diversity at board level than equal rights and remuneration for women throughout companies.
- The views and interests of beneficiaries are not meaningfully represented within the system, and the shift to "professionalise" trustee boards exacerbates this.
- A focus on disclosure, performance linkage and shareholder powers as a way to constrain executive pay has had very little success.
- The views of many ESG professionals on executive pay are to the Right of Conservative voters.
As someone who believes that conflict between interests both within the firm and within society is inevitable and desirable to some degree. I don't think any settlement lasts forever. But it does feel like the right time to on the one hand stop trying to reassert a model that is failing and on the on the other stop simply criticising that model in general terms. Instead we ought to be talking seriously about the outlines of what comes next.
So I'm going to start sketching out some initial thoughts. Here are my first two:
1. There should be an acceptance of the role of multiple stakeholders within the governance of the firm, not just shareholders.
I know many of us like to indulge the fiction that it's really the public that who are the shareholders, and therefore we're really arguing against ourselves. But in Actually Existing Corporate Governance a tiny minority of the public think of themselves as shareholders, while most people operating within large shareholding institutions do not act as if they represent the public interest. (I am doubtful if many of them even really think/act day-to-day that the money they manage and exert influence with belongs to other people.)
In reality power resides almost exclusively with asset managers, and most of the people with that power continue to advocate that shareholder interests come first.
This needs to end. Plenty of other successful economies have corporate models that do not place the role of shareholders above all others. Those of us in the UK that advocate for a different model are not plotting a deliberately destructive attack on the status quo to advance a political agenda, we just think the existing model has serious flaws and want to try something different.
Therefore lets have a proper discussion, involving all parties and giving equal weight to each (AUM figures won't count for anything here), about how we get from here to there.
2. Executive pay will have to be tackled politically to some degree.
Two things are obvious about executive pay - it's not going away as a political issue any time soon, and technical fixes of the kind offered by insider experts have been hopeless. It also remains the case that the people who have most control over the setting an approval of executive pay (board members, rem consultants, asset managers) have views that are well to the Right of public opinion, and even Conservative voters. I know many people in that milieu consider that public opinion is basically misinformed / "wrong". But, given that pretty much everyone else in society disagrees, surely it is time for a bit of self reflection.
Executive pay is reputationally corrosive for our economic system. Most people think the system is a swindle. But it's not just popular opinion. You can read just as much material as a rem consultant and reach the same judgment in an informed way. Trying to tackle executive pay through disclosure, performance linkage and shareholder power has taken none of the heat of the issue, and executive pay has continued to outstrip average earnings. It is not unreasonable to think this is unfair, and it is not unreasonable to questions executive pay in terms of whether relative rewards are fair (rather than just whether pay has been "earned" by performance).
It is simply not possible for shareholders to bring about the sorts of changes that society thinks are fair. Indeed, whilst most shareholders are inactive on the aspects of pay that the public finds most infuriating, saying "leave it to the shareholders" is only going to make the politics of pay worse. Therefore, institutional investors are going to have to accept that shareholder oversight is not the only game in town, and they are likely to play a smaller role in this issue in future (and some of them won't mind I think).
Disclosure of pay ratios is very obviously not going to be the end of the story.