Issue of the week: the PM’S boardroom overhaul

Will Theresa May’s watered-down governance reforms make any difference to the problem of “fat-cat pay”?

Theresa May made cracking down on corporate excess a centrepiece of her pitch to become Prime Minister last year, vowing to get tough on “irresponsible behaviour” and promising a Britain that “works for everyone, not just the privileged few”. In an article last week, she returned to the theme, announcing a “world-leading package” of governance reforms to combat the “unacceptable face of capitalism” in the UK. “Crikey!” said James Moore in The Independent. Are we talking about a revolution here? Sadly not. Despite the “fiery rhetoric”, all but one of the measures May proposed have been watered down. Companies won’t be required to hold “a binding shareholder vote on executive pay”, or put employees on their boards. The only measure to have survived intact is a new requirement to publish the ratio between chief executives’ pay and that of their workers.

The PM may have had little choice but to temper her proposals, said Jonathan Ford and Jim Pickard in the FT. The Chancellor, Philip Hammond, was “determined to dilute” what he saw as an unnecessary burden on business that would only add to the uncertainties surrounding Brexit. A good thing too, said Allister Heath in The Daily Telegraph. May should just “abandon her latest assault on capitalism” and let the market get on with its job. “It is simply not true to maintain, as almost everyone still does, that the pay of top bosses keeps going up regardless of performance.” According to Deloitte, the median pay for a FTSE 100 boss, which was £4.3m in 2016, fell by almost 20% this year “after shareholders decided to flex their muscle”. Some bits of May’s original package were always going to be unworkable, said the FT. Forcing companies “to install a worker” on the board “would have been fraught with problems”, given that the Companies Act stipulates that the main duty of boards is to “promote the success” of a company for its shareholders. Still, there are some useful measures, notably the obligatory publication of pay ratios, which should at least force bosses to justify their pay rises.

The dilution of the PM’S plans for corporate reform reflects her “loss of political authority since her June general election debacle”, said The Guardian. Even a supposed ally, George Freeman, has accused her of “flirting with anti-capitalism” and not supporting “British enterprise”. But ultimately, this was a missed opportunity to find a “compelling alternative to Labour’s revived statism and centralism”. The Tory party “needs to find a believable, 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.”