Five ways capitalism can work ‘for all, not just the few’
How should Theresa May act on her pledge to reform corporate culture in the wake of the BHS scandal?
Theresa May has vowed to reform capitalism in the wake of last week’s damning report by MPs into the collapse of BHS.
As a parliamentary committee described the failure of BHS as the “unacceptable face of capitalism”, the new prime minister reiterated her pledge to tackle corporate irresponsibility by promising to “reform capitalism so that it works for everyone, not just the privileged few”. We asked experts what May could do to pull off a genuine revamp.
Put workers on boards
One idea that May has raised herself is for consumers and workers to be represented on company boards.
After years of pushing for the UK to follow many of its European neighbours on this, the TUC has welcomed the proposal. Kate Bell, head of economic and social affairs, says employee representatives can provide a restraining voice on pay in the boardroom.
She adds: “Workers can bring other values to the board, such as understanding what’s going on on the shop floor [and] how technology changes are working out ... but they should also have an influence on pay and conditions.”
But May should expect to encounter resistance from business groups wary of sweeping regulations that make life more complicated for those already playing by the rules.
Adam Marshall, acting director general of the British Chambers of Commerce, says businesses are fed up with the focus on bad examples like BHS. “The government should focus on what’s going right in such a large number of smaller and medium-sized companies.
“When government starts to address these things by regulating it becomes the thin end of the wedge and it can hamstring great businesses.”
Publish pay ratios
Another May idea that has been broadly welcomed is making shareholder votes on corporate pay not just advisory but binding. She also wants companies to publish the ratio between the chief executive’s pay and the average company worker’s pay.
The proposals have won the approval of the High Pay Centre. The thinktank’s director, Stefan Stern, wants May to live up to her words. “Let’s not hang about, let’s have compulsory pay-ratio publication,” he says.
With people talking about “employer brand” there are advantages for companies in this transparency, believes Stern. “You can position yourself as a business as being more of a John Lewis or Co-op,” he says.
Force businesses to look beyond shareholder value
While some campaigners for corporate governance reform welcome the proposals on pay and worker representation, others warn such changes will not tackle the root problems of a capitalism that appears to work for the few only.
Calls are growing for a shift in focus so business is operated for all stakeholders, not just for shareholders – in other words, putting the interests of employees, communities and the environment alongside the interests of shareholders. James Perry, co-founder of the B Corps movement in the UK, which backs the idea, explains: “There’s no point in trying to make rules on executive pay and board representation if the board continues to believe it’s there to maximise shareholder value.
“We want to see shared and durable prosperity for all and we believe there is a better alternative for capitalism. What Theresa May can do is make that better alternative clear to people. Fiduciary duty needn’t be about maximising shareholder value; it can be about maximising shared value.”
Introduce tougher standards for company directors
The BHS collapse has highlighted the need for higher-calibre directors on boards to scrutinise decisions and speak out when necessary.
The Institute of Directors, a lobby group for business leaders, responded last week to May’s calls with a “blueprint for good business leadership”. It set out expectations on directors at companies of all sizes, including listed and unlisted firms, and not-for-profit organisations. The lobby group’s demands on directors include knowledge of finance but equally an ability to encourage diverse views. It also recommends directors get regular training.
Tackle living costs and economic insecurity
If May really wants to see the benefits of capitalism shared more equitably, her government must raise housing supply and cut the cost of renting or buying a home, says Torsten Bell, director of the thinktank Resolution Foundation.
“There is nothing you could do on pay that could have as big an effect on people’s finances than sorting out the housing situation.”
Shoring up economic security is also key in an age of zero-hours contracts and when many people are working fewer hours than they wish or going self-employed out of necessity, say anti-poverty campaigners.
Katie Schmuecker, head of policy at the Joseph Rowntree Foundation, comments: “Half the people that are experiencing poverty are in working households. People want stability.
“We need to look at the way in which pay, in-work benefits, taxation, the cost of housing and the cost of childcare work together.” ■