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| Tories' corporate reform proposals a far cry from May's radical pledge Tories' corporate reform proposals a far cry from May's radical pledge | |
| (35 minutes later) | |
| Theresa May promised radicalism on executive pay and boardroom governance but her government’s green paper is not that. Most of the proposals represent tweaks to the current setup. The corporate lobby, one suspects, will breathe a sigh of relief. The pay of the average FTSE 100 chief executive has increased from 47 times that of the average worker in 1998 to 128 times last year. On the basis of this document, it would be hard to conclude that the gap is about to close. | Theresa May promised radicalism on executive pay and boardroom governance but her government’s green paper is not that. Most of the proposals represent tweaks to the current setup. The corporate lobby, one suspects, will breathe a sigh of relief. The pay of the average FTSE 100 chief executive has increased from 47 times that of the average worker in 1998 to 128 times last year. On the basis of this document, it would be hard to conclude that the gap is about to close. |
| The prime minister had already performed linguistic gymnastics to recast her promise to introduce workers’ representatives on boards; it turned out that her idea didn’t involve actual workers on actual boards, just mechanisms for their “voices” to be heard. It now appears that even her plan to give shareholders an annual binding vote on boardroom pay could be destined for reinterpretation. | The prime minister had already performed linguistic gymnastics to recast her promise to introduce workers’ representatives on boards; it turned out that her idea didn’t involve actual workers on actual boards, just mechanisms for their “voices” to be heard. It now appears that even her plan to give shareholders an annual binding vote on boardroom pay could be destined for reinterpretation. |
| The green paper says binding votes could apply to all companies or only to those that have “encountered significant shareholder opposition” to the remuneration report. The latter idea would seem to continue to allow BP to pay its chief executive £14m despite the opposition of 60% of its shareholders, as it did this year. The only sanction would be that the company would find it harder to pull the same trick twice. | The green paper says binding votes could apply to all companies or only to those that have “encountered significant shareholder opposition” to the remuneration report. The latter idea would seem to continue to allow BP to pay its chief executive £14m despite the opposition of 60% of its shareholders, as it did this year. The only sanction would be that the company would find it harder to pull the same trick twice. |
| Prospects look brighter for pay ratios in the sense that the “pro” arguments received more space than the “cons”. And large private companies will be brought into parts of the governance fold, a reform that looks entirely sensible given what we’ve learned about BHS and Sir Philip Green’s Arcadia in recent months. | Prospects look brighter for pay ratios in the sense that the “pro” arguments received more space than the “cons”. And large private companies will be brought into parts of the governance fold, a reform that looks entirely sensible given what we’ve learned about BHS and Sir Philip Green’s Arcadia in recent months. |
| But Iain Wright, the chair of the business select committee, which did such a good job on BHS, is correct when he says the list of tentative options suggests a government “whose resolve may have weakened on getting to grips with corporate governance”. | But Iain Wright, the chair of the business select committee, which did such a good job on BHS, is correct when he says the list of tentative options suggests a government “whose resolve may have weakened on getting to grips with corporate governance”. |
| If one digs deep, some big ideas are acknowledged, it should be said. One of the best has come from the Tory MP Chris Philp, with the backing of the governance old-hand Lord Myners and the lauded fund manager Neil Woodford: Scandinavian-style shareholder committees that would, in effect, replace nominations committees and recommend the appointment and removal of directors. | If one digs deep, some big ideas are acknowledged, it should be said. One of the best has come from the Tory MP Chris Philp, with the backing of the governance old-hand Lord Myners and the lauded fund manager Neil Woodford: Scandinavian-style shareholder committees that would, in effect, replace nominations committees and recommend the appointment and removal of directors. |
| The beauty of this proposal is that it would oblige shareholders to become more active in setting pay, listening to outside voices and questioning strategy – in short, participating in what is done in their clients’ name. It is one way to crack the problem of “ownerless corporations” – the single biggest impediment to reform. | The beauty of this proposal is that it would oblige shareholders to become more active in setting pay, listening to outside voices and questioning strategy – in short, participating in what is done in their clients’ name. It is one way to crack the problem of “ownerless corporations” – the single biggest impediment to reform. |
| Unfortunately, while Philp’s idea was included, the mention was brief and heavily qualified. Instead, the government seems inclined to embrace “stakeholder advisory panels”, which are fine as far they go but are ultimately powerless. | Unfortunately, while Philp’s idea was included, the mention was brief and heavily qualified. Instead, the government seems inclined to embrace “stakeholder advisory panels”, which are fine as far they go but are ultimately powerless. |
| May should rethink. Or, rather, she should remember her own criticism in the summer of the insufficient scrutiny provided by non-executive directors “drawn from the same, narrow social and professional circles as the executive team”. Her point was excellent because it identified why most governance reforms have disappointed in the past 20 years: the same people have been left in charge of the decision-making. Few of the proposals in this green paper address that central problem. May needs to recapture her summer zeal. | May should rethink. Or, rather, she should remember her own criticism in the summer of the insufficient scrutiny provided by non-executive directors “drawn from the same, narrow social and professional circles as the executive team”. Her point was excellent because it identified why most governance reforms have disappointed in the past 20 years: the same people have been left in charge of the decision-making. Few of the proposals in this green paper address that central problem. May needs to recapture her summer zeal. |
| EU to the rescue of Ofcom? | EU to the rescue of Ofcom? |
| Prepare the Brussels battalions. If BT won’t separate legally its Openreach subsidiary to the satisfaction of its regulator, it must be made to comply, which – for a little while yet – means summoning the European commission. Actually, it probably won’t come to that. BT will surely fall into line with Ofcom’s wishes quickly because it has no other choice. | Prepare the Brussels battalions. If BT won’t separate legally its Openreach subsidiary to the satisfaction of its regulator, it must be made to comply, which – for a little while yet – means summoning the European commission. Actually, it probably won’t come to that. BT will surely fall into line with Ofcom’s wishes quickly because it has no other choice. |
| The telecoms regulator proposed legal separation of the Openreach subsidiary, the bit that manages most of the UK’s broadband infrastructure, in July to address competition concerns. Now it is a question of making it happen. | The telecoms regulator proposed legal separation of the Openreach subsidiary, the bit that manages most of the UK’s broadband infrastructure, in July to address competition concerns. Now it is a question of making it happen. |
| The main sticking point concerns the requirement for Openreach to have an independent board with a chief executive who reports only to Openreach’s chairman. Ofcom thinks BT’s current proposal leaves too many reporting lines open to the BT chief executive, Gavin Patterson. The problem does not sound fundamental. | The main sticking point concerns the requirement for Openreach to have an independent board with a chief executive who reports only to Openreach’s chairman. Ofcom thinks BT’s current proposal leaves too many reporting lines open to the BT chief executive, Gavin Patterson. The problem does not sound fundamental. |
| Legal separation of Openreach, under BT’s continued ownership, is an untested structure that may prove clunky in practice. But it is the one Ofcom has settled upon and it avoids the costs and hassle of a full breakup. It’s worth trying. BT should avoid the appearance of foot-dragging and get a move on. | Legal separation of Openreach, under BT’s continued ownership, is an untested structure that may prove clunky in practice. But it is the one Ofcom has settled upon and it avoids the costs and hassle of a full breakup. It’s worth trying. BT should avoid the appearance of foot-dragging and get a move on. |