Labour and rem comms

Interestingly, a lot of stuff I read coming from Labour MPs, commentators etc these days seems to take for granted that corporate governance reform is going to part of our programme when back in power. The extent of such change I'll come onto, but it is striking that the idea of having employee representation on remuneration committees is basically uncontested now within Labour. It is now apparently so uncontroversial that I've seen people further Right than me in the Party suggest it's pretty meaningless (or at least ineffectual, which might not come from the same perspective).

I apologise for obsessing about this one idea, but in the little corner of the world I inhabit the idea of employee involvement on rem comms is Very Radical Indeed. People in the mainstream corp gov world believe it would fundamentally challenge our model of corporate governance and/or that it will simply never happen. This is understandable on one level. After all, until recently this idea really was on the fringes of the debate about executive pay. Until the last few years pretty much the only strong public voice in favour came from the TUC. I know from my own time there that it was common to be the only person in a meeting advocating the position, and that hadn't changed much until the last year or two. If you only followed the corp gov community's opinion you could easily form the view that this still is on the edge of the debate.

Now, however, it's a firm policy position of a political party that could well be in power in a couple of years. I suspect that partly it's the work of the High Pay Centre, which managed to straddle both the mainstream of corp gov opinion on pay and some more radical terrain. This is no doubt in no small part because it did not just rely on the opinions of investors and instead included other voices. In any case the effect has been to destigmatise what was once a radical idea, at least in the policy world (as I say, I don't think the traditional corp gov community has accepted the idea and, as such, neither has it recognised that this reform really could happen).

There are a few reasons why this reform sits well with other influences on Labour thinking. The Blue Labour perspective has been associated with a push for something along the lines of co-determination (obviously a much more radical overhaul than just putting people on rem comms), in part, I think, as part of its emphasis on rebuilding the status of labour. Meanwhile, if you accept, as I do, that a focus on predistribution is a decent guiding principle when there isn't much money around to redistribute then trying to influence inequitable pay outcomes at source makes sense.

The thing is, as I've argued before, putting employees on rem comms opens up other issues. If employee involvement is good enough for remuneration issues, why not push their role wider, and look at employee representation in general? If rem comms are going to take account of employee pay, and employee views, should their scope widen beyond executive pay, and cover remuneration policy across the business?

This also opens up the discussion around executive pay. Currently the approach in corporate governance is essentially instrumental - is pay set and structured in a way that furthers shareholder interests? This can lead to the circular argument that if shareholders do not challenge executive pay, then it must be in shareholders' interests (otherwise they would challenge it) and therefore - from this perspective - it is OK. But involving employees in decisions about executive pay challenges the notion that this is just a matter for boards and shareholders (and therefore just because shareholders approve a given policy that doesn't mean it's OK). It suggests there are other questions that are valid to ask about executive pay other than whether it does a job for shareholders.

And if all this happens, presumably we will need to look again at the Corporate Governance Code (and maybe company law) which is currently built around the board-shareholder relationship.

Hopefully this shows that rem comm reform is not the small issue it may appear to be. If you pull at some of these threads other things unravel. But does that matter? One of the criticisms of Labour's rhetoric around responsible capitalism is that there isn't much behind it. Perhaps Labour ought to be really bold and push for wider governance reform that recognises the role of employees rather than just aiming at rem comms. When people like Jon Cruddas are saying we should at least be thinking of a 1979-style rupture I do wonder whether we ought to push further. I'll try and sketch out a few ideas in another post.