Corporate Governance and Social Responsibility — House of Commons, 2016-12-14
Topic: Macroeconomics
Louise Margaret Haigh (Labour, Centre-left): I thank you, Mr Deputy Speaker, for allowing time to debate this issue of critical importance today Having worked in corporate governance before I was elected, I am well accustomed to the fact that it is not a subject that excites or even particularly interests many people. I completely accept that, and it is demonstrated by how rarely it is raised or debated in this House. However, it is utterly fundamental to the workings of our economy and to how wealth is distributed across the country. What it essentially boils down to is this one key question: who does our economy work for In a year of global convulsions, that is a question being asked in unlikely quarters. When Mark Carney made his significant intervention, warning of "staggering inequalities" in an economy where many "lack a stake", some voices said that he had strayed too far from his brief. Not only was his intervention appropriate, it was absolutely urgent, because while 75 companies on the FTSE 100 collectively made a profit of £32 billion last year, most ordinary people’s wages are predicted to flatline well into a second lost decade. That makes people justifiably angry and society less robust In is in that context that the Prime Minister’s corporate governance agenda should be seen, and although it was welcome that the Secretary of State for Business, Energy and Industrial Strategy should introduce proposals for reform, I am afraid that the signals are not good. The Prime Minister floated worker representation on boards on her first day in office, but then informed the CBI that that would be voluntary. In a statement to the House, the Secretary of State lauded his own success in bringing down average pay for chief executive officers from £4.3 million to £4.25 million—I am afraid that that is hardly a job well done I know first-hand the enormous creative potential that a well-functioning company, backed by a strong governance regime, can unleash. Unlike the Government, who appear to have stepped back from desperately needed reform, I know that the status quo cannot continue. It represents grotesque pay ratios between the top and the bottom, and astronomical executive pay. We have seen the corporate greed of BHS, Sports Direct, Gunstones, ASOS and JD Sports, which treat their low-paid workforce with little more than contempt; the behaviour of energy companies quick to hike prices to maximise profits, but slow to lower them when the market shifts; and the short-termism that has resulted in productivity flatlining and investment being stifled as directors seek to maximise shareholder value at the cost of everything else That is nothing short of a crisis of legitimacy in the shareholder model, because confidence is placed in shareholders that, in my experience, is undeserved and misunderstands the completely altered nature of shareholders in UK plc. Although I welcome the Green Paper, I fear that it clings to a model that belongs firmly in the last century. We are not dealing with the shareholders of 30 years ago, who had a stake in the UK and held shares for a significant period. In 1998, just a third of shares were owned by non-UK investors, but now the vast majority are owned by such investors. In fact, it is almost absurd to talk about shareholders as investors, as most do not hold the shares for long—some hold them for just seconds. The figures are contested, but the most reliable ones that I have seen suggest that the average holding period has fallen from eight years in the 1960s to just four months, and as much as 70% of trades are high frequency The equity chain is grossly over-intermediated, meaning that those with skin in the game have little or no involvement in the company at the other end of the chain. Investors tend to own only about 3% of a company at any given time. The notion that that fragmented group will clamp down on executive remuneration, or is interested in the voice of workers or the long-term contribution of the company to the communities that it serves, is either naive or disingenuous.