Corporate Governance

John Bercow Excerpts

1st reading: House of Commons
Tuesday 29th November 2016 Commons Chamber

[Clive Lewis (Norwich South) (Lab)]

It is a shame that the Secretary of State did not share the statement with us in advance; presumably we are now expected to get first sight of Government policy through a long lens on Whitehall. But after weeks of press briefings, at least they have finally decided to come to this Chamber, because we have heard a lot about the Prime Minister’s policy on corporate governance, but the more they said, the less we have actually known.

When the Prime Minister launched her leadership, she said she wanted a change in the way big business is governed. She said:

“later this year we will publish our plans to have not just consumers represented on company boards, but workers as well. Because we are the party of workers.”

But it seems there has been a change of mind because just weeks ago we heard it was not about putting workers on boards but about finding a model that works for everyone. Perhaps it is the same model as for Brexit: to have their cake and eat it.

When we debated in the Chamber last month the fate of Sir Philip Green, I said that the most shocking thing about the whole affair is that everything he did was legal. A key question today is whether anything that has been proposed would change that: do these proposals pass the BHS test?

Bringing private companies into the plc rule book is a move so targeted at a particular series of events that I expect it will come to be known as the BHS law, but had the proposals outlined today by the Secretary of State been in place six months ago, I am not wholly convinced we would have avoided the corporate governance scandals that have plagued the last summer. To force private companies to abide by the corporate governance code will do little unless the code is tightened. BHS may have been a private company, but Sports Direct is not, and we all know what has gone on there.

Similarly, to strengthen the power of boards to give oversight on how companies are run or their remuneration structures will change little unless the make-up of those boards is also shaken up, yet we all know what has happened to the Government’s commitment to put a diversity of voices on boards. It is a weakness of too many discussions of corporate governance, and a weakness reflected in this Green Paper, that they are dominated by high-profile scandals.

For too long our economy has suffered from an inherent short-termism—a short-termism that sees the long-term health of a company being sacrificed for a quick buck, and that all too often obscures the link between rewards and long-term performance. In 1970, £10 in every £100 went on dividends; now, it is between £60 and £70. It is employees and investment that have lost out from this shift. We see that in our pitiful investment and productivity rates. Britain now languishes 33rd out of the 35 OECD countries on investment rates. Seen in this light, it is no surprise that it takes British workers five days to produce what German workers produce in four—and we see this in the yawning gap between top pay and average pay: in the 10% increase in executive pay when workers are suffering 10 years of stagnant wages.

Our damaging short-termism is also seen in corporate takeovers that occur against the public interest and the company’s interest—takeovers that have instead served as a means to asset-strip, as when Kraft took over Cadbury with hedge funds buying up 31% of the shares and selling Cadbury short.

When the unacceptable face of capitalism surfaces, as it has in the last few months with the scandals in BHS and Sports Direct, what we are witnessing is the extreme manifestation of these broader problems, and that is what makes today so particularly disappointing. Corporate governance reform is not just about improving the image of our corporate sector or placating our innate sense of injustice at the lack of proportionality between the salaries of directors and their employees; nor is it just about fulfilling the wishes of the six out of 10 members of the public who, as TUC figures show, want to see workers on boards. These things matter, of course, but corporate governance reform is also about changing the way our companies, and therefore our economy, work.

The recasting of how our economy works is key to Britain’s success. Without more long-termism in our corporate practices, we will not be able to address the problems—

[Mr Speaker]

Order. The hon. Gentleman has had his five minutes. I do not know whether he was then proposing to put questions, but I gently say to Members that in these matters there is a form to be followed—a procedure to be adhered to—and although I have listened to the hon. Gentleman with great care and attention, he has contributed in the manner of a debate rather than a response to a statement. Ordinarily, I would be very happy to hear his questions, but Members cannot make a long preamble and exceed their time, and then almost as an afterthought get around to some questioning. So I think we will for now have to conclude that the hon. Gentleman has concluded his contribution. But I am sure the Secretary of State will find in the commentary some implied questions, using the great intellectual dexterity for which he is renowned in all parts of the House.

[Greg Clark]

I am grateful to you, Mr Speaker, and I apologise to the hon. Member for Norwich South (Clive Lewis) for not getting the statement to him earlier; we started a bit sooner than we were expecting, but—

[Mr Speaker]

Order. As I have mildly castigated the hon. Member for Norwich South (Clive Lewis), I should say that it must be admitted that that would have been helpful.

[Greg Clark]

You are absolutely right, Mr Speaker, and I apologise.

I hope the hon. Gentleman will contribute to the consultation. It is clear that he shares an interest in improving the standards of corporate governance, which we have done from time to time in this country over many decades. We have a good reputation for corporate governance, and it is important to record that the rest of the world looks, and has looked, with admiration at the British economy, the rule of law and the non-legislative aspects involved. I hope he will agree that the examples of poor corporate governance he mentioned are blemishes on a very strong overall record of responsible corporate behaviour in this country. We should put on record our recognition of the importance of business and our support for the job creators, the risk takers, the innovators and the investors—the people who, through their profits, generate the taxes that sustain our public services.

It is reasonable to have a constructive discussion on this matter through the consultation, and that is what we intend to do. The hon. Gentleman said that executive pay had been escalating. Perhaps he would like to reflect on the fact that the biggest rise in chief executive pay was actually in the period from 1998 to 2010, when the average rose from £1 million to £4.3 million a year and the ratio of chief executive pay to full-time employees’ pay rose from 47:1 to 132:1. He is a reasonable and generous man and I know that he will concede that, under the years of Conservative leadership, the average pay for chief executives has fallen from £4.3 million to £4.25 million a year and that that ratio has fallen from 132:1 to 128:1. So we are moving in the right direction and these further reforms will take us further.

The hon. Gentleman mentioned the proposals to have workers and consumers on boards. The Prime Minister has been very clear on this, and it is testament to her leadership that she set out her intentions right at the beginning of her term of office and that we are now coming forward with these proposals. She made it clear that we would have not just consumers but employees represented on company boards, and these proposals will allow that to happen and encourage the practice to be taken up.

The hon. Gentleman mentioned the relevance of our reforms to the more high-profile sources of controversy. Of course, one option is to extend the good provisions for public companies to our very largest private companies. He will know that the Financial Reporting Council’s governance code requires extensive monitoring of risk levels for plcs over and above the requirements placed on limited companies. He mentioned cases involving listed companies, and I hope he will agree that having a greater connection between employees and directors is a step in the right direction. Conservative Members are unashamedly and unequivocally pro-well-run business, and I hope that he shares our view. Consistent with that, it is important to work with business, employees and other groups from time to time, to look at what we can do to stay ahead of the pack. That is what this consultation does.

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[Several hon. Members rose—]

[Mr Speaker]

Order. I would like to accommodate the substantial interest in the statement, but if I am to do so, given that there are two notable pieces of business to follow, pithiness will be required from those on the Back and Front Benches alike. That pithiness is first to be exemplified by Mr Michael Gove.

[Michael Gove (Surrey Heath) (Con)]

I congratulate my right hon. Friend on his statement today. We all know that the dynamic growth on which our future depends will be secured only if there is public support for the free market system that generates such growth. To that end, what more can he say about ensuring that we have working-class representatives at the heart of decision making in our great companies, and about effective curbs on executive pay when pay follows failure?

--- Later in debate ---

[Several hon. Members rose—]

[Mr Speaker]

I observe in passing that there is an undiluted sea of men seeking to catch the eye of the Chair. If a female Member were to stand, she would be called, but at the moment she is not, so she will not.

[Victoria Atkins (Louth and Horncastle) (Con)]

rose—

[Mr Speaker]

If that was a serious bid, I call Victoria Atkins.

[Hon. Members]

Hear, hear!

[Victoria Atkins]

I welcome this statement. Will my right hon. Friend assist the House by saying how the plans tie in with the need to ensure that business owners comply with not only the letter of the law, but the spirit? I am thinking in particular of the Companies Act 2006 and corporate governance failures that have led to prosecutions—something that may be relevant when the hon. Member for Norwich South (Clive Lewis) talks about BHS.

[Mr Speaker]

She is not a barrister for nothing.

[Greg Clark]

My hon. Friend makes an excellent point. There are two complementary elements of corporate governance. One is the law and statutory requirements—it is important that they are enforced with vigour—but it is also true that the culture and practices of companies should reflect the high standards that we enjoy in this country and that contribute to business’s high reputation. I hope that we can further increase that through the measures that we are proposing.