The UK’s opposition Labour Party says it would force institutional investors to disclose in full how they vote at company annual meetings if it gets into power at the next election, set for next year.
Shadow Secretary of State for Business, Innovation & Skills Chuka Umunna said a Labour government would require investment and pension fund managers to disclose how they vote as shareholders on all issues, including remuneration.
Umunna made the comments in a foreword to Beyond Shareholder Value: the reasons and choices for corporate governance reform, a new set of essays published by the Trades Union Congress (TUC), the umbrella union body. The book has 17 essays from a range of figures including Vicki Pryce from the Centre for Economics and Business Research and professor and economist John Kay, who led the government-sponsored review of equity markets.
All of the contributors argue that the current system of corporate governance is not serving the UK economy as well as it should and needs to be reformed.
Umunna says that if the UK is to build a robust economy, it must “address the endemic short-termism in its corporate culture and the narrow metrics by which success is judged”.
He continues: “The rules governing corporate behavior are critical because they shape the business models firms adopt, the investment decisions that are made, and in whose interests they are made. If we want firms to take a longer-term, broader and more inclusive view of the value they create, we need rules that encourage and support this.”Among other things, Umunna focuses on executive pay, arguing that while effective staff need to be well-remunerated their incentives need to be aligned with the long-term success of the company.
“That is why we have endorsed the recommendations of the High Pay Commission that pay should be reported in a standardised form, with only one additional performance related element and with a single figure showing total remuneration,” he says.
“The rules governing corporate behavior are critical”
He also says that Labour has endorsed the idea that pay of the 10 highest earners outside the boardroom should be published, along with the ratio between the highest-paid employees and the median. He says his party will introduce binding votes on remuneration packages that work by ensuring shareholders must approve a decision in advance, not after the event.
And it would also ensure that companies put an employee representative on remuneration committees in a bid to end the “group-think and the never-ending upward ratcheting of pay that comes with it”.
The book itself makes a number of proposals for institutional reform including the introduction of different classes of shares to differentiate between short-term traders and those with a long-term stake in a company, and tightening the rules surrounding takeovers.
TUC Secretary General Frances O’Grady said she sees a “growing consensus” to change the corporate governance system away from its current focus on shareholder value.