New British Prime Minister Theresa May calls for boardroom reforms

Theresa May, who takes over as prime minister of the UK today, has called for reform of corporate governance, including worker representation on company boards and measures to address excessive boardroom salaries.

May wants to see more consumers and employees represented on company boards, specifically FTSE 100 companies, an idea that, while mainstream in other European countries, has not been seriously debated in British politics since the 1970s. In a speech during her leadership campaign, May said: “If I’m prime minister [...] we’re going to have not just consumers represented on company boards, but workers as well.”

The plan, which as yet has no concrete details in place, could also see the end of both ineffective advisory notes to companies, and unregulated takeovers, such as the attempted acquisition of pharmaceuticals company AstraZeneca by Pfizer in 2014.

If successful, the reforms could reinstate the trust of consumers in business, as some executives have themselves admitted that distrust could be the result of excessive boardroom pay. It would also be a significant political achievement, considering the failure of previous governments to affect real change among big business.

Vince Cable, former business secretary in the UK coalition government of 2010–2015, attempted to reform excessive boardroom pay, but was forced to weaken his original proposals. Similarly, in the 1970s, the government of former Prime Minister Harold Wilson commissioned a report on worker representation that favored the idea of employees on company boards, but nothing further came of it.

May’s proposals would be a significant departure for the Conservative party, which has traditionally resisted company regulation. However, whether or not the plan would be successful remains to be seen, particularly due to the failure of Germany’s directive, which attempted to implement worker representation in the boardroom, but did little to change excessive executive salaries. Even so, were the reforms to become a reality, the question still remains as to whether or not large corporations will be more or less successful with better representation in the boardroom.

In his IZA World of Labor article, Do works councils raise or lower firm productivity?, Olaf Hübler discusses the German model of worker involvement in company management. He writes that works councils can boost company productivity when certain conditions are in place, although he notes that this effect has been in decline in recent years.

Related articles:
Do work councils raise or lower firm productivity by Olaf Hübler
Efficient markets, managerial power, and CEO compensation by Michael L. Bognanno
Market competition and executive pay by Priscila Ferreira