29 November 2016

Has Theresa May bitten off more than she can chew?

By

A visionary company, according to James Collins and Jerry Porras, should set itself a BHAG – a Big Hairy Audacious Goal. The idea is to motivate your team by setting out an audacious, contentious and long-term mission statement about where the firm should target its efforts – something like “organise the world’s information” (Google) or “colonise Mars” (SpaceX).

Theresa May’s new government arrived with one BHAG already in place – first to define Brexit, then to deliver it.

To this it has since added another – to build “a country that works for everyone”.

Today’s front pages reflect these two parallel priorities perfectly.

In the Telegraph, the Prime Minister is announcing new regulations on executive pay. Elsewhere, the focus is on an aide to Mark Field MP snapped in Downing Street with what appear to be detailed notes of a conversation with Brexit Secretary David Davis. (No 10 have denied that the notes reflect their thinking – but to quote Mandy Rice-Davies, they would, wouldn’t they…)

Both stories have, in their different ways, frightened the horses. On the business side of things, it’s completely understandable that the government wants to deter Philip Green-style profiteering – and to restrain the runaway growth in CEO pay, which has outpaced basic salaries:

ceo1

And also the actual performance of the firms the CEOs run:

ceo2

Yet it’s also notable (not least to some Tory supporters in the City) quite how, well, Labour-ish the whole thing sounds.

Guess, for example, who said this:

“An inclusive wealth-creating economy works when there is a shared sense of responsibility, so we will be a government that is both pro-business and pro-worker. We value all our businesses as organisations of innovation and wealth production, and we will work strategically with them to create wealth.”

Or this:

“Through our industrial strategy we will proactively support the industries of the future, as well as those like financial services, where we already have a world leading competitive advantage.

“And we will rebalance the economy across sectors and geographical areas in order to spread wealth and prosperity around the country.

“But in return, it is right to ask business to play its part in ensuring we build a country that works for everyone. And that British business, which is so often on the frontline of our engagement with the world and whose actions so often project our values in the world, is seen not just to do business but to do that business in the right way.”

Or this:

“Britain’s economy is being held back by the culture of short-termism, which is a major obstacle to the development of productive businesses and industries.

“We will reform corporate governance to protect our leading firms from the pressure to put tomorrow’s share price before long-term growth potential.

“Institutional investors will have a duty to act in the best interests of ordinary savers. They will have to prioritise long-term growth over short-term profits for the companies in which they are investing. We will change takeover rules to enhance the role of long-term investors by restricting voting to those already holding shares when a bid is made.

“In addition, we will strengthen the public interest test. We will improve the link between executive pay and performance by simplifying pay packages, and requiring investment and pension fund managers to disclose how they vote on top pay. And we will make sure employees have a voice when executive pay is set by requiring employee representation on remuneration committees.”

The first and third are from Ed Miliband’s manifesto – the second is Theresa May’s recent speech on globalisation. But both, in essence if not in detail, share a view that big business has got too big for its boots and needs to clean up its act.

(There are, of course, some deeper differences of philosophy: May prefaced that section of her remarks by paying tribute to business’s amazing wealth-creating power, while Miliband followed his by lauding the trade unions.)

Whatever the economic merits of May’s proposals (and it’s important to remember that this is still a green paper rather than settled government policy), there is no doubt that the politics are in her favour on this. It’s no coincidence that May’s more worker-friendly tone has been accompanied by poll ratings that are embarrassingly stratospheric.

Like Donald Trump with his excoriations of Wall Street – or even George Osborne and David Cameron with their occasional acts of banker-bashing – she knows voters whose own pay has been squeezed and squeezed are in no mood to hear about bumper City profits.

And May has even more licence to offer a friendly, or not-so-friendly, critique of business behaviour than David Cameron did: given the prospects for British business if Jeremy Corbyn took power, firms have no choice but to cleave to the Tories.

Yet at the same time, there is a long-term strategic problem here – which is that the Government’s two BHAGs may be mutually contradictory.

If we are to take the Field notes as gospel – or even just to listen to the mood music coming out of Whitehall – then a “soft Brexit” is out. Britain will take the risk of exiting the Single Market and Customs Union because it believes that otherwise, a “proper” Brexit cannot be delivered.

But it is highly likely that a post-Brexit Britain will be doing all it can to make itself an attractive place for business – especially if negotiations turn sour and we end up having to trade essentially on WTO terms rather than having full access to the European markets, which would in turn trigger the potential flight of many foreign firms who have based themselves here in order to sell into Europe.

Under such circumstances, the overwhelming impulse would surely be to go the Singapore route – to make ourselves the kind of highly skilled, highly flexible, highly competitive, highly deregulated economy that can sail the global seas. Which is hard to square with talk of pay ratios, worker representatives on renumeration committees, and so on – however sensible those ideas may be.

The sentence that everyone has focused on from those scribbled notes was the claim that when it comes to Brexit, the Government (like its Foreign Secretary) wants to both have its cake and eat it.

When it comes to those Alan Greenspan referred to as “the pollinating bees of Wall Street”, the Government is embarked on a similarly optimistic venture: to keep their honey coming while simultaneously drawing their sting.

Robert Colvile is Editor of CapX.