Theresa May on the Shape of Corporate Governance to come

Over night the UK Prime Minister, Theresa May, has delivered a speech at the Confederation of British Industry (CBI) annual conference about the forthcoming Green Paper on corporate governance, in particular the Government’s position on worker representation on boards.

Worker representation (in terms of direct appointment of a worker or trade union representative to the board) – will not be mandatory.

The key points from the speech appear to be:

• Business needs to change its approach to restore its “bruised” reputation with some parts of the community – as a result of the behaviour of a few businesses and business figures who appear to game the system and work to a different set of rules. The speech referred to the need to recognise that when the social contract between business and society fails – and the reputation of business as a whole is undermined (which I suggest means such hot button issues as zero-hours contracts and the Sports Direct and BHS scandals).

• So just, as government must open its mind to a new approach, the business community must too. That is why the UK government will shortly publish its plans to reform corporate governance, including executive pay and accountability to shareholders, and proposals to ensure the voice of employees is heard in the Boardroom.

• The UK has a strong reputation for corporate governance –which have made it a prime location for listing and headquartering. But it can’t stand still – and must continue to make improvements where these result in better companies and improved confidence in business on the part of investors and the public.

• Much can be done by voluntary improvements in practice – in the representation of women on Boards and in senior positions for example, or in broadening diversity. But where there is a need to go, the Government will do.

• The Green Paper, later in the autumn, will address executive pay and accountability to shareholders, and how to ensure the employee voice is heard in the Boardroom. This will be followed by genuine consultation – to work with the grain of business and to draw from what works but also deliver results.

• Importantly:

o While it is important that the voices of workers and consumers should be represented, this will not be about mandating works councils, or the direct appointment of workers or trade union representatives on Boards. Some companies may find that these models work best for them – but there are other routes that use existing Board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented.

o This is not about creating German-style layers of governance which separate the running of the company from the inputs of shareholders, employees, customers or suppliers. The existing Board / governance works well and will be maintained. But it is about ensuring employees’ voices are properly represented in Board deliberations, and that business maintains and – where necessary – regains the trust of the public.

Perhaps typically, the speech has been characterised by some in the UK press as a policy U-Turn. And some commentators have suggested that (mandated) worker representation would have been cost-free to the taxpayer but brought with it the potential to increase innovation, and provide fairer and better pay for workers, and more successful businesses overall.

Perhaps inevitably, the line is drawn by some commentators to the sea change occurring as a result of the Brexit vote and now the US Presidential election, and claims about the gulf between the “elite” and those who are “ordinary workers”.

Whether such comparisons are valid in the case of New Zealand, where SMEs with less than 20 workers make up such a significant part of the economy, is an interesting issue. Nonetheless, the latest developments in corporate governance from the UK will be viewed with interest.