Theresa May’s line about non-executive directors is powerful and she clearly intends to stick to it: “Too often the people who are supposed to hold big business accountable are drawn from the same, narrow social and professional circles as the executive team.”
It is the prime minister’s argument for why she wants consumers and workers to be represented on boards. She used it in her pitch to be Tory leader in July and rolled it out again, almost word for word, in her conference speech. We must assume she’s serious.
If so, she had better be ready for a backlash from business that will match the outcry over Amber Rudd’s weird demand for companies to disclose the number of foreign workers they employ.
On workers’ representatives, FTSE 100 chairman and chief executives tend to fall into two camps. The first crew think May is engaged in tokenism and that her reform would make little difference. The other rolls its eyes with disdain and accuses the prime minister of failing to understand how large companies operate and how they are owned.
To feel the size of the philosophical chasm, consider fund manager Legal & General Investment Management’s latest proposal on boardroom pay, the issue that has triggered the political interest in the make-up of boards.
LGIM is usually regarded as being at the enlightened end of City thinking on pay; it often votes against the worst excesses. But its big idea is merely that bosses should meet employees every year to justify their remuneration decisions. That is miles away from May’s vision. If the prime minister is true to her public statements, she would surely regard a conversation as a feeble cop-out.
It is hard to see how the two sides can possibly meet in the middle. You either have worker and consumer representatives on boards or you don’t. A voluntary code would be ignored. Giving current non-executives formal duties to look out for workers’ and consumers’ interests would be a pointless exercise in verbal gymnastics. A clash is coming.
As it happens, this column is sympathetic to May’s line of thinking. She is correct to think mutual backscratching is alive and well in UK boardrooms, especially when pay is being decided. She is also right to argue that overthrowing a cosy culture involves changing the people around the boardroom table.
There are other ways to address the problem, however. Tory MP Chris Philp has suggested a Scandinavian-style system in which a committee of large shareholders would propose the non-executives, thereby reducing the chair’s power to appoint his or her chums.
It’s an interesting idea, carries support from the likes of lauded fund manager Neil Woodford, and would be relatively easy to implement. But it is not May’s proposal. Instead, she is on collision course with the business establishment. Good luck; the showdown could become a defining battle of her leadership.
Treading on Bank of England’s turf
The prime minister also needs to learn to speak carefully when treading on the Bank of England’s turf. At one point she said super-low interest rates and quantitative easing had had some bad side effects. “People with assets have got richer, people without them have suffered,” she said, before returning to her riff that change is coming.
What sort of change would reverse those ill effects? Was she planning to abolish Threadneedle Street’s indpendence to set interest rates? Nothing of the sort, of course, as Number 10 was obliged to explain. May was merely indicating that her government will be at the service of those who have found themselves poorer as a result of monetary policy.
What does that mean? Absolutely nothing of substance, it seems. Governor Mark Carney can sleep easily, even if he is a foreign worker in the UK.
Tesco gains doesn’t guarantee dividends
There was no dividend, or even a hint of when one may return, but Tesco shareholders’ expectations are set low these days. All it took for the share price to rise 10% on Wednesday was a decent set of first-half results plus a prediction by chief executive Dave Lewis that profit margins will improve to 3.5%-4% eventually.
One shouldn’t be sniffy, of course. Lewis has delivered on the top two priorities he set on arrival two years ago. He has been nicer to customers, in the sense of cutting prices by 6%, thereby reversing the leakage of sales to competitors. And he has made peace with suppliers – he can point to a big jump in “satisfaction” measures.
The margin ambition (please don’t call it a target because that is how his predecessor tripped up) was designed to signal to shareholders that they will reap the fruits of those labours. Fair enough – reassurance is usually welcome.
But the enthusiasm in the share price looks overdone. The margin ambition is for three years’ time. Tesco’s debt still isn’t investment grade. And the £6bn deficit in the pension fund can’t be ignored entirely, even if it is the product of the madness of pension accounting. Investors should judge Lewis when he has restored dividends. He’s not there yet.
