Reading between the lines

There is an old adage that if you give a hundred monkeys typewriters they will eventually come up with ‘Hamlet’. If you want an election manifesto, give the typewriters to weasels instead.

Manifestos are normally awash with weasel words – qualifying statements and expressions of best endeavour that water down apparently absolute commitments. This is not surprising. It makes sense for politicians to allow themselves some wriggle room, as it is inevitable that circumstances and priorities will change during their time in government (if they get there). So manifestos are probably better thought of as being a general statement of intent than a definitive ‘to do’ list.

That said, on a superficial first reading of those parts of the Conservative, Labour and Liberal Democrat manifestos addressing corporate governance, the weasel words are less in evidence than I might have anticipated. But they are there.

The outgoing Government has already signalled pretty clearly in the Green Paper on corporate governance reform that it intends to regulate on executive remuneration, so it is perhaps no surprise that there is a fairly unequivocal commitment to introduce annual binding votes and a requirement to disclose an executive/workforce pay ratio in the Conservative manifesto. They are a little less forthright on other issues.

Although the summary at the beginning of the chapter on the economy promises ‘new rules for … worker representation on company boards’, the detail reveals that ‘listed companies will be required either to nominate a director from the workforce, create a formal employee advisory council or assign specific responsibility for employee representation to a designated non-executive director’. Although permitting a number of options is probably the right thing to do, only one of the three could really be described as offering ‘worker representation on company boards’. A cynic might suspect that the authors wish the reader to believe they will be getting the first option, while anticipating that most companies will opt for the second or third.

On the question of how to strengthen the corporate governance of private companies – the third issue on which the outgoing Government consulted – we are told that it will be the subject of further consultation, but no further elaboration is provided.

Turning to the Labour manifesto, it contains what appears to be a promise to revise Section 172 of the Companies Act to give more weight to directors’ duties to stakeholders other than shareholders. This will also be subject to consultation, however, in order to make sure any legislation is ‘appropriate’ – always a good word to use if you don’t want to narrow your options down too early.

As with the Conservatives, Labour promises legislation on executive pay – in this case ‘by introducing an Excessive Pay Levy on companies with staff on very high pay’, with no further detail of what would be considered ‘excessive’.

And, as with the Conservatives, no clear timetable for introducing this legislation is given, although Labour do at least narrow it down to ‘within this Parliament’. Although the desire to avoid committing to a set timetable is understandable, it does make it harder to gauge where these specific commitments rank in the long list of priorities that are dotted around the manifestos.

The Liberal Democrats side with the Conservatives on executive remuneration, also promising binding votes, and are the only party explicitly to link remuneration to worker representation by advocating staff representation on remuneration committees – one of the recommendations in the BEIS Select Committee report on corporate governance that was published in April.

The Liberal Democrats also propose taking action to permit companies to adopt a German style two-tier board structure and to allow directors and fund managers to ‘fully include’ considerations such as community benefit and environmental impact when making decisions. Some might be inclined to nit-pick and point out that none of these things are actually prohibited at the moment, but I will simply note that promising to ‘permit’ something to happen is obviously a lot softer than promising to ‘ensure’ it does.

As I said, these observations are based on a quick first reading of the three parties’ manifestos. But I think I can already say with absolute certainty that – depending on the outcome of the election, and subject to prevailing economic conditions and other policy priorities at the time – we can definitely expect ‘something’ to be done. Exactly what it is, and exactly when it happens, we will need to wait and see. 

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