EDITOR'S LETTERMerryn Somerset Webb
Enough about Brexit – it’s time to talk about the fat cats
Crazy month. Sane result. That seems the simplest way to sum up UK politics since the EU referendum. It’s looked like chaos. But within a few weeks we have moved from a shock vote for Brexit to a leadership campaign via a period in which person after person, as the wonderful Ruth Davidson put it, was “resigning, getting knifed, bottling it, withdrawing, failing, declaring, or falling on their sword” and on to the coronation of a new prime minister – and a perfectly good one at that.
This is the kind of thing that should make our political system the envy of the world – because it works. It means, as analyst Russell Napier says, that the UK is capable of “flexing not breaking”. The politicians who stretched a million truths in the run-up to the referendum are gone. The overvalued pound that produced our horrible current-account deficit is gone. The cost of our borrowing has fallen with gilt rates, such that we can now dump austerity. Our constitution, exchange rate and political system are all flexing. So far so good.
What next? Theresa May promises to follow through with Brexit. That’s good. However, it’ll take a while – our guess is that while an awful lot will be blamed on Brexit over the next five years (some with validity, most without), by the time it is all sorted out, most people will have forgotten that trade terms with the EU were ever a problem.
We also suspect that the corporate world in the UK will have long switched from whining about Brexit to worrying about bonuses. Why? Because while we don’t know much about May’s policy plans we do know that she has had it with big company boards. She reckons they aren’t working as they should. So she wants to find a way to block takeovers that come with little point beyond making CEOs rich. She wants to make shareholder votes on remuneration binding (rather than advisory). And she wants consumers and employees to sit in on board meetings.
Not many boards will like this. Nor will many fund managers (if their votes on behalf of shareholders are fully binding, they will have to use them properly). But it shouldn’t come as too much of a surprise. Corporates have been ignoring their stakeholders (ie, everyone but their short-term shareholders) for decades – the evidence is all around us. Think ludicrously high executive pay, low dividend cover, low average wages, low productivity and low capital investment – all things that are bad for both long-term shareholders and the economy.
I haven’t been the only commentator telling boards and fund managers for years now that if they didn’t reform themselves sharpish they would end up being reformed by someone else. If that now happens, they have only themselves to blame. The rest of us should be cheering May on. If life after Brexit is to be better, the corporate sector needs to flex with the rest of the UK’s institutions – whether it wants to or not.