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The Conservative party refuses to take City excess and the corporate reform agenda seriously, says our editorial. Photograph: Paul Davey/Barcroft Images
The Conservative party refuses to take City excess and the corporate reform agenda seriously, says our editorial. Photograph: Paul Davey/Barcroft Images

The Guardian view on corporate governance reform: be stronger, not weaker

This article is more than 6 years old
Theresa May has always wanted a new approach to executive pay and boardroom values. Her latest plans fall far short of what Britain – and the Tory party – should demand

Attacks on excessive executive pay and calls for more consensual company management have always marked Theresa May’s Conservatism out from that of her more Thatcherite colleagues. Mrs May has highlighted these issues often since she became prime minister. At the weekend she returned to the theme in a newspaper article, echoing Edward Heath’s 1973 phrase about the “unacceptable face of capitalism”. Now she is having another try, launching a package of measures on high pay, workers’ rights and corporate governance to mark her return to the political stage after the summer break.

Mrs May’s concern about these issues is right and rational. They are unfinished business for modern Britain. Unfortunately there is little that measures up in this package. Several of the ideas that Mrs May floated in 2016 – themselves fairly modest in the first place – have now been trimmed back or dropped altogether, in response to lobbying by the chancellor, Philip Hammond. Binding annual votes by shareholders on executive pay have bitten the dust. Now the City’s self-regulatory code will require companies only to publish the pay ratio between CEOs and their workforce average. Plans to put employee representatives on company boards have been abandoned. Now the appointment of a non-executive director “to represent employees” will suffice.

The dilution of the proposals reflects several things. The most obvious of these is Mrs May’s loss of political authority since her June general election debacle. She is a leader on probation now. She must negotiate everything she does. But the most significant explanation may in fact be the wider Tory party’s continuing refusal to take City excess and the corporate reform agenda seriously.

Mr Hammond’s rearguard action can perhaps be explained as the typical act of a departmental minister trying to protect his clients. Yet all too few Tory MPs embraced Mrs May’s ideas even when she was strong, let alone now that she is weak. Too much of the Tory party remains smugly beguiled by laissez-faire dogmas, in spite of the massive evidence of their failings. Too little of the party is genuinely inquisitive about issues like workplace codetermination. None of it, Mrs May included, seems to have had a fresh thought about trade unions or workers’ representation for at least 30 years.

In spite of countless good reasons to do so, few leading Conservatives look to German, Scandinavian, Japanese or South Korean corporate thinking for better ideas, even in the wake of a financial crisis that wrecked public confidence in the City. Even one of Mrs May’s brightest allies, George Freeman, has accused her of “flirting with anti-capitalism” and chided her for not supporting “British enterprise”, rather than supporting her effort to make British companies act with restraint on pay and adopt long-term strategies.

The irony, even in her weakened position, is that Mrs May ought now to find a readier Tory audience for her ideas than in the past. The increased prospect of a Jeremy Corbyn government, the very same prospect that holds the Tories back from ditching Mrs May, also highlights their need to find a compelling alternative to Labour’s revived statism and centralism. Logically, the Conservative party needs to find a believable and pragmatic business agenda that reins in top pay and treats workers more fairly. Yet it will never do that by sticking to the status quo.

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