Theresa May’s great crusade against big business fat-cats has lapsed into minor tinkering

A pretty reliable rule of thumb is that the more someone talks about their integrity the less they actually possess. So the fact that we’re having a national conversation about corporate governance is not a healthy sign.

Theresa May spoke a radical game on business reform when she launched her Conservative leadership campaign in July. “I want to see changes in the way that big business is governed,” she said. “The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough. So if I’m Prime Minister, we’re going to change that system”.

So how does the Government’s green paper on corporate governance published today measure up to that bold rhetoric from the aspiring PM? Not very well, is the answer.

There are some good things in it. Proposals that listed firms should publish the ratio of pay between the chief executive and the median employee are welcome. The objections from corporate lobbyists to this were always feeble, implying that the public and the media would be unable to grasp the fact that banks have different distributions of worker pay than, for example, supermarkets and multinational mining companies.

Transparency is almost always preferable. And the transparency introduced since firms were compelled by the former business secretary Vince Cable in 2013 to publish a “single figure” for a chief executive’s remuneration (rather than an intentionally misleading soup of jargon) has been entirely beneficial to the public debate about pay at the top of big firms.

The paper also suggests that large privately-held firms should be covered by a code of conduct similar to the official governance code that applies to listed companies. This is sensible enough, although with research suggesting only around 60 per cent of FTSE 350 companies are in compliance with the official code the significance of such a reform should not be exaggerated.

And that’s about it. The idea of installing Swedish–style shareholder committees to approve directors and oversee pay, as proposed by the Tory backbencher Chris Philp a few months ago, is mentioned but not prominently, implying it won’t happen.

May’s pledge of a binding shareholder vote on remuneration every year – rather than every three years – seems to have been abandoned. And, most significantly, the Government has explicitly ruled out the mandatory appointment of an ordinary worker representative onto company boards, despite May clearly promising it four months ago. Instead, a designated non-executive director might have a special responsibility to “represent” the views of employees.

This misses the point because the problem is less about representation than power. The merit of a workers’ representative is that it would place a structural impediment to “self-dealing” by executives – the problem whereby large and complex firms have a tendency to be run primarily for the benefit of a small number of bosses, rather than for shareholders, customers and other stakeholders.

A proper workers’ representative could also be a catalyst for a new approach to pay policy, not just at the top but across the company. Average pay in the economy was lagging national productivity growth before the financial crisis in 2008, strongly implying ordinary workers have not been getting their fair share of the rewards of businesses’ success.

The overall corporate culture in the UK is unhealthy. And the major, systemic, dysfunction lies in large quoted companies. We have managements focused on meeting quarterly profit targets for City of London analysts, rather than investing to boost long-term productive capacity. A plague of remuneration “consultants” have turned executive pay into a powerful one-way ratchet, largely divorced from performance.

Supine non-executive directors tend to pick up their stipends and rarely put meaningful pressure on managements. Egregious and complex remuneration schemes are waved through by these same directors.

Stewardship by investors is weak. Fund managers are focused on slightly out-performing an index benchmark, rather than engaging constructively and closely with the managements of companies whose shares they buy. When they are unhappy they simply sell the shares, rather than voicing their concerns and demanding improvements.

The problem on the investment side is that fund managers are playing with other people’s money – and there’s no substantive accountability to those “other people”. Savers are in the dark about which companies their pensions are being invested in and they are continually ripped off by remote and unaccountable fund managers through excessive fees, often for abject underperformance.

May had a window to make some genuinely radical and meaningful reforms. Sadly, it seems that window has largely closed. The Government plainly lacks the will to mandate the kind of structural reforms of company boards and asset managers’ incentives that would make a substantive difference to corporate culture. May promised a crusade, but has delivered tinkering. And soon the Brexit negotiations will fully dominate the Government’s attention, opening the way for lobbyists to gut these timid reforms still further.

So it’s business as usual for business. But public trust and confidence in the large corporate sector is already low. How long will people put up with it before there’s a destructive backlash? In our era of populist rage, that’s a question that should worry us all.