Labour on takeovers etc

There was a tiny sliver of corp gov related policy in Ed's speech on the economy this week.

We will stop takeovers that are waved through on the votes of speculators and hedge funds who flood in to buy shares once a takeover bid has been announced. Because when that happens it can destroy great British companies and the good jobs that go with them.

That sounds like an argument for something like a qualifying period to me. Iain Martin on the Telegraph (who was the first politico commentator to assert 'Ed actually isn't useless') doesn't like the idea, and his blog on this is worth a read.

I don't agree that it would be difficult to enact, it would take a change to company law, but it could be done, as the Takeover Panel concluded -

the Code Committee understands that qualifying periods (or weighted voting rights) could be introduced through changes in company law. If such changes were to be made, the Code Committee considers that it would be logically consistent for the Code to be amended accordingly. In the absence of such changes, the Code Committee does not believe that the Code should be so amended.

The real question is whether it is worth doing. It will certainly prevent some people who will almost certainly vote FOR deals to go through (because they expect an uplift) from doing so. However that may not be enough to stop a lot of deals given how easily they pass. In order to really 'throw sand in the wheels' of M&A activity you would probably want to raise the voting threshold too. I think Labour proposed this latter policy in the 2010 manifesto, with the aim of raising it to a two-thirds majority I think? Would probably be more consistent with other votes to raise it to 75%. (PS - the Takeover Panel also looked at raising the threshold and again said it's doable via company law but that no-one wants it to happen.)

Those two policies combined would send a significant message about Labour's attitude towards MnA activity. It would be very unpopular with the City. I think business would be more ambivalent - some directors definitely think the takeover regime is too liberal (at one point the IoD backed a higher threshold for instance), others don't see the problem. I reckon the CBI would be opposed though.

So the political judgment is whether this is worth the fight.

The same is question arises in respect of the idea of putting employees on remuneration committees. As I've written a lot, I like this policy and I think it could be put into force without too much technical trouble, but again the question is whether it is worth the fight. I'm now of the view that, since there will be a scrap over this, Labour might as well at least try and go further - ie advocate employee directors - rather than spill blood over a relatively small shift in the membership of rem comms.

I'm no strategist, and the relative silence of the Labour frontbench (as contrasted with left-of-centre think tanks etc) on corporate governance reform might suggest that there is some nervousness about this stuff. Obviously no-one wants to be characterised as being anti-business, or adopting an old school approach to these issues.

However, I would make a couple of small points in support of Labour being ambitious. First, I genuinely think the 1990s version of corporate governance is becoming hollowed out, as we've had 20 years to try and make it work. For example, I note that the main argument that the Takeover Panel used (or said respondents used) against qualifying periods  was that it breached the 'one share, one vote' principle. Well, it is just a principle, and people like Bob Monks and Simon Wong have openly questioned whether it is necessarily always a good one, in corp gov terms. I don't think anyone can make a strong case, now, against reforming voting MnA solely by reference to the sacred 'one share, one vote' principle. It's kind of reduced to saying "we can't have that type of policy because we believe we mustn't."

Similarly the idea of employees on rem comms is currently mind-boggling for many people brought up on 1990s vintage corp gov. But again we've had a pretty good crack at trying to make shareholder empowerment plus company disclosure work. Again, opposition to employee reps generally makes reference to a certain type of corporate governance ideology - accountability should be to shareholders, employees wouldn't be 'independent etc - there's not a big legal or financial barrier (though we probably would want to look at company law). I think arguments that we only need more shareholder empowerment and more disclosure, because that's 'the system' we have and employee representation would be heretical in that system, seem pretty weak and, as such, will be easier to overcome now than in the past. In fact overall the whole 1990s corp gov consensus feels pretty flimsy to me now.

Second, as I suggested in my post about co-determination, it would be a mistake for Labour to over-estimate the attachment that shareholders (principally asset managers) have to their 'ownership' role. Many asset managers still don't really buy that 'stewardship' has a (financial) value, though they will go through the motions a bit. I think that, provided that the role and financial interest of shareholders is protected (and why wouldn't it be?), there may be less serious opposition to employee representation, than we might expect. I have no doubt that the CBI will make noise about the shift away from shareholder primacy (though I think the IoD might possibly develop a different view) and I suspect they can get some people in the investment world to parrot their lines. But I wonder whether the investment industry as a whole (ie not just the corp gov microcosm) will really want a big fight over this, particularly when what we are really talking about is who gets to go to which meeting, not whether or not shareholders still get votes/dividends/whatever.

If we want to see a big shift in corp gov I think what we need to do, and pretty quickly, is to start talking about these ideas with those we need to win over. Largely to try and get them onboard but also, and presuming that many won't shift, to gauge the breadth an depth of potential opposition.