Saturday, 27 October 2018

What comes next?

I think that the outlines of a future corporate governance model for the UK are increasingly clear. Whilst I'm a long-term, strong proponent of such a change, I think the range of voices in favour is a good indication that it is likely. In very broad terms I see three linked planks:

1. A move away from shareholder primacy. I know that some argue that actually section 172 of the Companies Act a) doesn't really have much practical impact and b) does sort of promote a wider interpretation of shareholder value. But I don't see a really strong argument against a formal shift. It is an increasingly widely made point that workers have long-term firm-specific risk in companies that deserves to be recognised. That needs to be captured in company law.

2. A formal role for employees in corporate governance. As I've blogged before, all the major political parties have made manifesto commitments to workers on boards in different forms. The Tories have actually gone ahead and made the FRC promote this - in a heavily fudged form - in the UK Corporate Governance Code. Although there are to date only a couple of examples of workers on boards (FirstGroup and Mears Group) the door is clearly open now.

3. Ensuring that workers derive a greater share of the wealth that they create at the point of production. This might be worker-ownership funds, or profit-sharing or some other mechanism. Again it is an increasingly widely heard idea (and Ed Miliband deserves a nod, because this is absolutely what he was aiming at with talk of pre-distribution).

This is a mixture of policies which would have been characterised as "far Left" a few years ago, and they are probably still viewed as such by some in the corp gov microcosm. But I could see them commanding a wide range of support across politics (and this is pretty mainstream social democracy in reality).

A couple of things to think about. In the event of a No Deal Brexit it's possible that the radical Right of the Conservatives take control go down a much more Thatcherite route, in which case this stuff will not happen. So nothing is inevitable.

Secondly, alternatively if this mix does look likely to come into force then we have to think about the relative position of shareholders. Strengthening the role of labour means weakening the relative position of capital even if their rights remain the same. This process needs managing. Time to get thinking caps on.

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