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An Ethical Flaw In Any 'Bargain' For Better #CorpGov?

Posted on November 22, 2016 at 1:15 PM

On centre stage in London at #CBI2016 the talk all seems to be around 'bargains' for better corporate governance. It's an interesting idea from the UK's Conservative government that is instantly ethically flawed.

Are we now resorting to paying people by barter for good behaviour? As well as perhaps, changing what words mean in a post-truth world.

The U.K. Prime Minister, Theresa May, has offered an extra £2 billion ($2.47 billion) for scientific research and development. But the Confederation of British Industry (CBI) revealed today that last year British business invested almost £21 bn on innovation.

This allowed British firms "to develop cutting-edge products and services, attract global investment and expand internationally" it said today. "The challenge for businesses is that while the UK innovation system has world-class attributes, it does not currently match their ambitions. Businesses rate the UK as 10th in the world for innovation" it added.

So, what's another £2 billion?

Also, a CBI survey of over 800 businesses - supported by Deloitte and Hays - shows that 70% of respondents plan to increase or maintain their innovation spending following the vote to leave the EU. Only 7% plan to reduce their investment.


But the word 'innovation' also seems to have been re-invented. Mrs May has also said she wants the UK to have the "lowest corporate tax rate in the G20" and a tax system "profoundly pro-innovation." I don't know about you, but while the first bit of that is crystal clear, the last bit is a bit of a profoundly bubbly thought bubble.

I do know the Prime Minister has done a complete U turn on the rhetoric around workers on company boards. I was the first, or among the first journalists, to pick up on that thread - silly me. It was only a political speech, after all, as suggested by some media comment.

But Frances O’Grady, the TUC general secretary, has already accused Theresa May of breaking her promise.

 "Theresa May made a clear promise to have workers represented on company boards. The proposals in her speech do not deliver on this. This is not the way to show that you want to govern for ordinary working people" she said today.

But the thing is, no government dare ignore the level of public anger about business that is often distilled around the subject of executive pay. It's so strong even the institutional investors have jumped on that bandwagon, sensing reputational disaster if they stay clear.

So on that subject Greg Clark, Business Secretary, was coy this morning on the BBC's Radio4 Today programme. He said he "wouldn't demur" from the idea that many people were "outraged" at high levels of executive pay.

Part of this new "bargain" between government and business is apparently about having a "much more rigorous approach to executive pay" - and on this the government is proposing binding shareholder votes. 

So, the lobbying has already begun. 'Ping' come the e-mails this morning.

The Cable reforms of 2012 have kept Executive Pay in the UK "stable" according to Mercer’s response to the Business, Energy, Innovation and Skills (BEIS) Inquiry into Corporate Governance. The consultancy says it believes that further regulation is not the solution to addressing remaining concerns over executive pay.

In its response, Mercer says data shows that "the pay of most UK CEOs is now well matched with their performance and that executive pay levels have remained broadly static since 2012."

“Our methodology shows that pay for the majority of UK executives is fairly balanced between shareholders and management. This sweet spot - the Zone of Fair Pay - has come about due to the reforms implemented by Vince Cable in 2012 and the efforts of compensation and remuneration committees. There are undoubtedly instances where public concern over excessive pay is justified and we support government efforts to make a fairer society. However, there are many parts of UK plc paying their executives in a responsible and fair manner" said Sophie Black, Partner in Mercer’s Executive Remuneration business.

Then why would they worry about binding shareholder votes ?

Anyway, the international nature of shareholders may well mean that a majority damning vote on pay happens so rarely it makes little difference to the UK corporate governance landscape - but everyone saves face in the great fight for 'fairness.'

There is a conference tomorrow in London on rebalancing the UK economy and also on improving corporate governance - with the Centre for Progressive Capitalism, at ICAEW. I am asking questions - stay tuned.




Categories: Governance, Accountability, Culture