Tuesday, 18 July 2017

A new Left alignment on corporate governance

I can't overstate how much I like the report that the IPPR has just issued on corporate governance. I've been boring on for a while now about what I see as the end of the 1990s model of corporate governance for the UK. At the same time there has been some excellent work from the TUC on both the challenges to shareholder primacy and the value of worker representation in corp gov. Plus lots of good blogging on this coming from the Left, particularly from Chris Dillow at Stumbling and Mumbling. And some sceptical voices from inside the system, like Guy Jubb and Chris Hodges.

I think what Mat Lawrence at the IPPR has managed to do is clarify really important, and increasingly evident, problems with the UK corporate governance model. Anyone coming at these issues from the Left from here on in should take Mat's analysis as one of the things they use to orient themselves. We have given the 1990s model, founded on the illusion that shareholders "own" companies, a very good try. We have reached the point that we now have codes to try and get shareholders to act like the model of how agency theory suggests they should act (even laissez-faire in capital markets has to be planned).

Conservatives in all parties talk about how disclosure of executive remuneration has had the unintended consequence of driving up pay levels. Yet they often fail acknowledge that the 1990s compact had two key elements: corporate disclosure and shareholder empowerment. They are largely silent on the failure of that second element. To me (to nick Albert Hirschman's idea) the "unrealised expectation" that shareholders would use that greater disclosure and increased power to act on pay in a way that aligns with the public, or other issues, is of critical importance. I think it's very important/encouraging that the Left acknowledges this point, as this will enable us to move on. I think the Right is still stuck in agency theory textbooks.

As I've blogged before, I think the 1990s model has run out of road. We have tried refashioning the relationship between companies and shareholders to make it work for progressive aims and it has not delivered. When I have a bit more time and headspace I will write my own Mea Culpa. I think the Left is much better advised to view the relationship between companies and investors as a field of activism in relation to specific companies (in the style of Share Action), rather than an area of public policy work. The gains from the latter have not been impressive. We would be better focusing policy work on ensuring that other voices - first and foremost that of employees - get proper representation within the firm, rather than further strengthening the position of shareholders in the hope that they will speak on our behalf.

So, go and read the IPPR report and let's get started on the alternative.

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