Workers must be at the heart of a new corporate model, writes Louise Haigh MP

This article first appeared in The Times newspaper on 14th December 2016.

We need a new deal between big business and employees, who have a greater interest in the long-term good of our companies and our economy than the international hedge fund investors we prioritise.

When Mark Carney made his significant intervention on the “staggering inequalities” in our economy some voices said he’d strayed too far from his brief and that he should stick to interest and exchange rates.

But the usual rules of the game are being torn up across the globe, and frankly not only was his intervention appropriate, it was urgent.

It is in this climate that the prime minister’s corporate governance agenda should be seen, and the early signs are not good.

While I was working in the City of London, the risk-taking, the mega bonuses and the pay-packets were viewed as the symbols of the corporate neglect which had done so much to shake trust in big business and brought our economy to its knees.

It was and still is grotesque, unchecked by shareholder power and in need of urgent reform.

But for me it was a much more mundane scene which said everything about the disconnect which has grown in our economy and which Carney rightly referenced. Quarterly, sometimes only annually, handsomely-paid executives would don their hard hats or the protective overalls and go out to sites and meet their staff.

For employees these were more state visits than genuine engagement with the workers that your company depends on. This scene says a lot about the system which puts the interests of largely unknown and private international asset manager over the workforce and communities that companies rely on.

That’s why the prime minister’s apparent volte-face on employees having a stake in their company by sitting on the boards sends such a damaging signal.

Having worked for a major institutional investor in the aftermath of the financial crisis, it troubled me greatly who held the cards that directors looked towards. These weren’t the shareholders of thirty years ago, who at least had a stake in the UK and were more often than not looking for sound, long-term investments.

They were and are funds based around the globe.

Compared to 1998 when just under a third of shares were owned by non-UK investors, now a majority are. Indeed, it is almost absurd to talk of them as investors at all; most do not hold the shares for long, some for just seconds.

That’s why we need a new deal between workers and big business.

We have to ask ourselves, ultimately who is more interested in the long-term good of our companies and our economy? Hedge funds on Wall Street, or the workers who have mortgages, pensions and livelihoods dependent on the success of the business?

The lesson from Asos, for instance, tells an important story. Their workers have been treated extremely poorly and yet at the most recent AGM, shareholders approved a large remuneration package for top executives.

Having grappled with these issues in the City, I know that the big issue is that the more directors are accountable to increasingly anonymous investors; the more our top businesses end up being accountable to no one and the bigger the impact this will have on corporate culture.

Rather than having a mortgage, a home and a stake in the community; these investors increasingly look like the buy-to-let landlords, skimming off the profits with little interest in the community at large. Yet they hold the cards.

That is why the flimsy proposals for consultation put forward by the Government will do very little to change behaviour. Because, ultimately what is needed is a wholesale change in outlook.

So what can be done? Employees having a statutory role at board level must be a line in the sand; the government cannot row back on the fresh outlook and different priorities which employees would provide.

Changing the legal duties of directors so that they prioritises the success of the company at large over just shareholders would be a significant shift, and one that many voices who previously advocated minimal change are making.

And transparency has to be at the heart of these reforms; large companies should report on their impact upon their communities, their environment and their workers, not merely in the interest of corporate accountability but in the interests of good management.

The government cannot afford to row back from reform. At the heart of this is the crisis Carney referenced; people lack a stake and they cannot see a way to exert influence.

While 75 companies on the FTSE 100 made a profit of £32bn last year, most ordinary people’s wages are predicted to flat-line into a new lost decade.

This is a crisis of legitimacy over who governs our companies and in turn who they act in the interests of. It is a crisis the government cannot afford to ignore any longer.