Everyone agrees that “fat-cat pay” needs reining in, even Theresa May’s new-look caring Conservatives. This week’s announcement of the Government’s latest corporate governance proposals does not therefore come as much surprise. See the Government’s proposals and our review of them.
What does appear to be missing thus far (characteristic of many of the Government’s more populist proposals) is anything by way of evidence of real necessity for the measures proposed. After all, in her Foreword, Prime Minister Theresa May describes Britain’s system of corporate governance as already “rightly envied and emulated around the world“. You would think you would need some pretty solid basis of fact for doing anything to change that, but the Government’s response does not contain this.
For example, beyond a Daily Mail headline, what is a fat-cat, technically speaking? Any well-paid director in a company, however small (the company, not the director)? Any director in a big company, however poorly paid? Anyone on six figures? In the Foreword also, just how small is the “small minority of companies falling short of the standards we expect“? In how many companies has executive pay “become disconnected from the performance of the company itself“? How was that assessment made? By whom?
“Some directors seem to have lost sight of their broader legal and ethical responsibilities“, says Mrs May, implying that this is something new. Which companies? Why is the existing strict law around directors’ duties not adequate to address these alleged lapses? She goes on: “There is a worrying lack of transparency around how some large privately-held companies behave“. Which companies? Which behaviours? If good corporate governance has the bottom-line benefits contended for, why would any business deliberately do anything else?
Overall, how sure are we that this is not just another layer of bureaucracy imposed across industry to nudge the behaviours of a tiny minority? These are easy political sound-bites to make while bashing fat-cats is in season, but we should be wary of fashion and seemingly unsupported assertions of this sort as a basis for actual law-making.
Time and consultation will tell how much of this makes the statute-book in the end. It is possible to think that despite their undoubtedly worthy aims, someone in the anticipated post-Mrs May Government will conclude that many of these measures have no real relevance to Britain’s place in the world after Brexit and leave them quietly to wither.