In her brief but successful campaign to become the UK’s Prime Minister earlier this summer, Theresa May gave a speech that set out her priorities if she became the country’s leader. She did not focus on the complicated business of wrenching the UK out of the European Union. Nor on the myriad insoluble problems that come banging on the front door of Number 10 Downing Street, like terrorism, immigration or funding the National Health Service.
The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long term and defend the interests of shareholders
Instead, the premier-to-be laid out dramatic and far-reaching proposals for reforming the UK’s system of corporate governance.
The content, tone and target of her remarks were remarkable coming from one seeking to become the leader of the Conservative party. She said: “The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long term and defend the interests of shareholders. In practice, they are drawn from the same narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough."
She went on to propose that UK quoted company boards be required to include representatives of workers and consumers, a bolder proposal than that offered by the rival, left-leaning Labour Party at the last election.
Some have dismissed her comments as just plain wrong – with the notable exception of the financial services sector, UK corporate governance has performed well. Others dismissed Theresa May’s diagnosis as political sloganeering that will never translate into new rules for boards. Still others have harrumphed that these changes could fatally undermine the whole concept of the UK unitary board.
The newly minted Prime Minister’s charge against the British boardroom cannot be ignored, however. Ms May has channelled the same widespread feelings of disenchantment, disillusionment and anti-elitism that lie behind the Donald Trump bandwagon in the US, or that of similar populist parties in Europe, or indeed the UK’s vote for Brexit. Too many communities feel left behind by globalisation and the information technology revolution, and have concluded that neither big business nor their government has their interests at heart.
The most visible symbol of a business elite that has cast itself adrift from most ordinary people is executive pay. Here too, Theresa May has promised greater power for shareholders, not to mention the potential influence that those worker representatives may have over remuneration discussions.
But executive pay is only a proxy for a broader disconnect between big business and the society in which it operates. When even the Financial Times comments that “there is too much rent seeking and not enough wealth creation” in the UK commercial world, and that the “anything-goes” model of capitalism needs to be made fairer, then it’s clear that that disconnect has become one of crisis proportions.
Britain’s new Prime Minister has made it clear that she has heard the demand for change. The question then is: will the UK’s directors now demonstrate that they too are listening?
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