Employee Shareholding and Participation in Corporate Governance

Lord Monks Excerpts

Thursday 11th October 2018 Lords Chamber

[Lord Monks (Lab)]

My Lords, I add my thanks to my noble friend Lord Haskel for initiating very well this timely debate and shining a light into Britain’s often murky world of corporate governance—a world with an unhealthy reliance on short-term shareholder returns and eye-wateringly excessive levels of executive remuneration, often for mediocre performance. The result of this focus on shareholder returns is too many companies that raise debt to pay dividends and related bonuses rather than invest, and companies that asset strip and shun innovation and creativity. Fortunately, there are exceptions, but too many UK companies are anorexic. Too often they are vehicles for financial engineering rather than real engineering and high-quality performance. As the excellent IPPR report points out, our investment levels are below the developed country average. The stock of business capital is falling and our R&D investment is lower than that of our peers. It is a rather dismal tale and it has been this way for a long time.

Some 30 years or so ago my father-in-law became the chief executive of the ninth-largest Dutch company, after a decade spent in London. When I asked him what the difference between the two was, he said that on his supervisory board in Holland he had the Mayor of Rotterdam and a couple of union representatives. I asked him what difference that made and he said, “We are a lot more careful. We have to take account of a wider range of interests than we ever thought were relevant to our operations in London”. I can well understand why, in the recent Unilever case, it was seeking to relocate to Rotterdam. I believe it was to protect itself against further hostile bids. It was scuppered by the British investment houses, but I honestly think that if I were in Unilever I would be quite worried about its possible vulnerability to Heinz, Kraft or whoever—there are some giant companies looking at that company. Escape to a more protected environment was shut off.

There is no silver bullet, as was just said, but I would like the Government, in their work on the corporate governance code, to look afresh at the examples already referred to in the debate from other European countries, and to bite the bullet and provide for elected worker directors on company boards, for works councils and for a role for recognised unions. It is standard practice in many countries—countries which, let us be frank, are economically more successful, in a balanced way, than our own. The Prime Minister was blown off course in 2016; I hope she resumes the journey that she started then, bringing other stakeholders onto boards and remuneration committees—stakeholders whose perspective is not governed by their next bonus or the quarterly results. Long-term success must be the goal. Boards which are more diverse—in gender and ethnic terms as well, but more representative of stakeholders—can help with that. Action is long overdue.