Were the Prime Minister’s Eyes Too Big for Her Stomach on Executive Pay?

By Meg Powell-Chandler, Director, Public Affairs

There are two important skills in politics – the ability to identify the problem, and the ability to identify a workable and achievable solution to it. Theresa May’s Government has been very successful at the first, think back to her speech on the steps of Downing Street which was welcomed across the political divide for identifying the social and economic problems that face this country.

Where it has been less successful – and the General Election result was a consequence of this – is that the solutions to these social and economic problems have failed one or both of two tests: popularity and achievability.

Turning to the issue of Corporate Governance, the Prime Minister came into office with radical words. In the very short leadership campaign set against the context of Sir Philip Green and Mike Ashley, she stated “the people who run big businesses are supposed to be accountable to outsiders” and committed to employee representatives on company boards, increased transparency around pay ratios and binding shareholder votes on corporate pay.(1)

These policies were based on the idea that it doesn’t matter how much you improve the lot of the people at the bottom and the middle, they will always compare their lot to those at the top. The approach that gave rise to her political mantra: ‘A country that works for everyone, not just for the privileged few’.

With 6 in 10 people supporting workers on boards(2) and 57% of the public agreeing with the statement “Government should encourage companies, through measures like taxes and Government contracts, to cap bosses’ salaries at a maximum of 20 times the company average”(3), it looked at least like the Prime Minister’s solutions were popular. What about the achievability test?

In the newly formed department for Business, Energy and Industrial Strategy, corporate governance was highlighted as a No10 priority and plans were quickly drawn up to show the Prime Minister what could be achieved and quickly.

But the plans presented by BEIS fell short of the ambition of Theresa May’s rhetoric. Rather than Civil Servants trying to limit the political will, it was instead a presentation of the lessons learned from previous attempts of Corporate Government reform. These lessons, simply put, are as followed.

If you want to do anything impactful in this space you need primary legislation.
Primary legislation is a high risk strategy: the right will reject the premise of intervention in the running of a private sector company, the left will want a solution ten times more radical than you are proposing. Both sides will amend to high heaven and if you are able to get it out of the Commons in one piece (which is highly unlikely) you then have the whole battle again in the House of Lords, which is full of even more radical ideologues on both sides.
The resulting Corporate Responsibility Green Paper published in November last year, was seen by many as a U-turn on the Prime Minister’s clear commitment to put workers on company boards.

It is becoming clear that the Government’s response to the consultation on this Green Paper due to be published next week will dilute plan even further. Measures around transparency will survive, but it’s been suggested that anything requiring legislation will be dropped.

The Conservative manifesto made clear what a majority Conservative Government would do on corporate pay and governance – and, whilst is may have been slightly less radical than May’s early rhetoric would suggest, it would be far more than many Conservative MPs would have felt comfortable voting for.

With the General Election resulting in the current parliamentary arithmetic, any radical move on corporate governance is likely dead in the water, but given the importance May has attributed to this issue other avenues to effect change will no doubt be explored.

Meg Powell-Chandler is a Director in Burson-Marsteller’s UK Public Affairs practice. She previously worked as a special adviser in 10 Downing Street and to Greg Clark, the Secretary of State for Business, Energy and Industrial Strategy.

1. Theresa May Speech in Birmingham, 11 July 2016, link
2. TUC Press Release, 29 November 2016, link
3. ComRes, Sunday Mirror / Independent Political Poll Jan 2017, link

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