From gravadlax to Ikea and The Killing, Britain hasn’t been able to get enough of all things Scandi of late. So how about a dash of Nordic corporate governance?
The new PM Theresa May is looking to reform the way Britain’s largest companies are run in the hope of giving workers a say and bringing down what’s seen as excessively high pay for the country’s top bosses. One of her MPs, entrepreneur Chris Philp, has suggested one model that might work.
His report, published with the High Pay Centre today, calls for mandatory publishing of CEO/eworker pay ratios and annual binding votes on executive pay, two proposals that have been floated before. But it also suggests a less familiar idea, that listed businesses be forced to adopt ‘Swedish-style’ shareholder committees (no that doesn’t mean shareholder committees served with a side of lingonberry jam).
The top five shareholders of each company would replace the existing nominations committee in recommending the appointment and removal of directors, and would ratify pay policies before they go to a vote at the AGM. The idea is that this would shift the balance of power away from increasingly maligned non-executive directors and back towards the shareholders.
Philp hopes that such changes would tackle the problem with what former City minister and M&S chairman Lord Myners calls ‘ownerless corporations’. These are big listed firms whose leadership is too far removed from the shareholders whose bidding they are supposed to be doing and who get an easy ride from apathetic fund managers all too happy to sit back and let them get on with it. The MP suggests that’s an underlying cause of soaring executive pay packets as well as over-ambitious expansion and takeover plans.
The report has won the backing of Myners and the renowned fund manager Neil Woodford. ‘[NEDs] are elected with North Korean-like majorities by uninterested shareholders, selected through a process led by the chairman which would also be familiar to those in Pyongyang,’ said Myners. ‘[Philp’s proposals] will not be universally welcomed by either company directors or fund managers because they challenge the existing order that has suited these two communities so well. But implementation of his programme would represent a transformational change in the democratisation and accountability of ownership.’
The Swedish model certainly seems a more measured approach than the German model which was the focus of much discussion when May first announced her plans to give workers more input on the way their companies are run. Going down this route would allow her to do that without radically changing the way boards function by stuffing them with union reps. As a Tory MP it’s quite possible that Philp has the ear of the Prime Minister, so don’t be surprised if Britain’s boardrooms could get a bit Scandi in the coming years. Who’s for a plate of meatballs?
Image source: Karl Baron/Flickr