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Governance on the political agenda as general election looms

By Gavin Hinks

10 Downing Street

An election before Christmas is almost certain. Brexit will undoubtedly dominate the campaigning and the policy agenda, but there is a chance other policy topics will make an appearance, at least in party manifestos.

Among those may be a slew of governance topics. They may not be major vote winners, but they could certainly be used to bolster support. But which policies will be lined up to win the hearts and minds of UK voters?

This is not a frivolous question. Though it may seem an age ago, Theresa May, in both her leadership speeches and her rocky 2017 election campaign, placed governance front and centre. Indeed, May’s manifesto said she would deliver “fairer corporate governance” and make it an essential part of tackling social divisions and building an “economy that works for everyone”. She cast governance as key part of policymaking.

Since then corporate governance has become a core focus of political discourse here and in the US. In the presidential election, key candidates—among them Elizabeth Warren—have built their campaigns around confronting what they see as a system unfairly weighted in favour of big corporations.

In the UK policies have already been developed and implemented. Chief among them was an update to the UK’s corporate governance. This introduced three options for worker representation on boards, a watering down of May’s original discussion of mandatory workers on boards. The worker director remains an option, but few companies are expected to take it up.

Potential policies

Will the current Conservative government push for more governance reforms? Despite their recent budgetary largesse during the recent spending review, Boris Johnson’s government is unlikely to be so relaxed with governance.

According to Ashley Walsh, head of policy and research at campaign group the High Pay Centre, while we might see some measures to extend gender and ethnicity pay gap disclosures, anything else is unlikely, despite the core issue for business being public trust.

“Sajid Javid and Andrea Leadsom have been schooled in the same orthodoxy as Philip Hammond,” Walsh says, “and will be unlikely to push the agenda any further, preferring to wait to examine how the new corporate governance regime will alter public trust in business as well as corporate governance practices.”

The Labour Party, however, has been developing policy while the Tories manage party schisms. Chief among their proposals is addressing capital ownership. There are two ideas likely to feature in the party’s manifesto: employee ownership trusts (EOTs) and what it calls its “inclusive ownership fund” (IOF).

Many believe we can expect Labour to offer some form of incentive for the creation of EOTs, either from existing companies, or for new ones. One example is the transfer of ownership of the electronics retailer Richer Sounds to employees by its founder; another example is organic veg delivery business Riverford. John Lewis also stands out as a beacon for Labour policy thinkers.

The IOFs would see companies move 10% of their capital into a fund from which employees would then receive a dividend. This might also be tied to a demand for 30% of board places going to employees. Labour has looked to the continent, and Germany in particular, for this model.

Ashley Walsh believes Labour might return to the topic of reforming regulatory bodies.

“Expect Labour to radically rethink the regulatory framework after the Sikka Report last year recommended that parliament replace the Financial Conduct Authority and other regulators with a new ‘pyramid structure’ of overseers led by a ‘business commission’ representing stakeholders from the workforce and wider society, with sub-commissions focusing on corporate governance, finance, banking, and accounting.”

Labour has not impressed everyone with its reform agenda. The Financial Times, in partnership with the law firm Clifford Chance, estimates the IOFs would cost £300bn in shares. Carolyn Fairbairn, director-general of the CBI, has said two-thirds of its members would be hit by IOFs. She told the FT there would be an “immediate hit to investors, many of whom are pension funds, and it makes it harder for businesses to raise capital for future growth”.

In an election scenario Labour may attempt to make much of its efforts to reform business. The Conservatives may be too tied up in Brexit calculations to offer a rounded agenda. Either way, an interesting debate lies ahead.

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