British businesses wary of Theresa May’s board reforms

British businesses have been urging politicians to come up with a post-Brexit plan of action - but the one Theresa May outlined yesterday was not what they had in mind.

“Big business needs to change,” she declared as she proposed binding annual shareholder votes on executive pay, consumer and worker representatives on boards and curbs on predatory takeovers.

For companies desperate for more clarity on the UK’s future relationship with the EU, it was not the message they wanted to hear at a time when there are fears over investment and economic growth.

"These items would not be at the top of businesses' wish lists right now," said Tim Thomas, director of employment and skills policy at the EEF, the manufacturers' organisation.

“Government must bolster the business community’s confidence by setting out what the UK’s relationship will look like with the EU with a strong, positive message on trade and migration policy.”

He said the UK needed to attract foreign investment to succeed outside the EU, which did not sit easily with Mrs May’s idea of defending some companies from takeovers. “It is a slightly mixed message, with the chancellor in the States saying the UK is open for business and encouraging investment here.”

But while many big businesses are likely to rebut the idea of putting workers on boards, they are more likely to voice their disagreement with the new prime minister in private than in public.

The CBI, the UK’s biggest business lobby organisation, chose its words carefully, saying the government should consult with businesses before making any changes.

"To ensure the most effective proposals are considered, it is important that issues - such as putting employees on boards, whether they would need to sit on the full board and how they would use their voting rights - are discussed between the government and business," said Josh Hardie, the CBI's deputy director-general.

The Institute of Directors was more enthusiastic - but with one caveat. Putting workers on boards and publishing the pay gap between chief executives and workers should be introduced on a voluntary basis, said Oliver Parry, the IoD's head of corporate governance.

But he agreed with Mrs May’s message that big businesses need to change. The IoD’s 35,000 members are mostly directors from small and medium-sized firms.

"Her focus clearly needs to be Europe. but let's be honest, there have been problems with big business," Mr Parry said. "One could argue that the voice of big business was not really listened to in the referendum debate. Public trust in big business is near an all-time low."

Mrs May’s pitch for greater business democracy in Brexit Britain borrows heavily from practices in continental Europe.

Worker representation on boards is already well established in many other EU countries, although the scope of businesses covered varies markedly, with some nations limiting the requirement to larger companies or only state-owned enterprises.

In Germany, employee participation is ingrained in the country's working culture: for larger companies, German law requires up to 50 per cent of board members to be employee representatives.

According to data from the European Trade Union Institute, Britain is one of only 10 EU countries to set no requirement for employee representation. The others include the Baltic states, Belgium, Romania and Italy.

Mrs May’s agenda would see her sprint ahead of many European countries when it comes to granting shareholders a bigger say on executive pay.

The UK has already been a trailblazer in this area, introducing rules in 2013 allowing a vote on pay at least every three years. This already ran ahead of Brussels, where the European Commission proposed similar standards the following year.

That draft law is mired in discussion in the EU institutions, largely because of a push by the European Parliament to include additional rules on corporate transparency opposed by nations.

France, frustrated by slow progress in Brussels, is introducing its own tough rules, which its lower house of parliament backed last month.

Ms May’s new plans would bring the UK close to the planned French rules, by giving shareholders annual binding votes on pay.

But Vince Cable, the former business secretary who introduced the UK’s rules in 2013, warned yesterday that this would be difficult to pull off. He told Sky it would be fraught with legal complexities, which is why he did not go further with his own reforms.

Mr Parry from the IoD said a vote every two years might work better. “There is a happy compromise to be struck somewhere.”

The Financial Times