9 February

A new corporate culture



Jackie Ashley's weekly article in the Guardian today ("To chop City bonuses, start by cutting the testosterone") focuses on the banking crisis. Her sub-titles give its flavour "All sides agree banking's diastrously aggressive, risk-taking culture has to change. More women in finance might be a start" and "Nobody actually needs £20m bonuses. These are symbols of hierarchy and dominance, like big ruffs and peacock feathers." In the course of the article, after referring to politicians' condemnation of City bank practices (she quotes George Osborne's "The party is over for the banks"), she says "Yet everyone knows that politicians themselves can't manage the banks. They can't go in and start setting salaries, picking clients, deciding which business is a safe risk and which is not. The change in the culture they want has to happen inside the financial system itself. So how might that happen?"



I wrote in as follows:

Jackie Ashley asks how change in the culture politicians, and I would add the public at large, want can happen inside the financial system itself. She rightly says that politicians can't manage the banks or set salaries or pick clients or decide what is a safe risk and what not. The answer, of course, in a corporate regime (and this goes not only for our banks but for companies generally) is by shareholder activism. I demonstrated its power in 2007 in my campaign to persuade Tesco to pay a living wage to its outsourced workers in the developing world, when 20% of its shareholders declined to back the company. Such a tactic is open to shareholders to clip the wings of greedy directors, to stop a company engaging in tax avoidance schemes which are unpatriotic or anti-social and damage the company's reputation or in activities which damage the environment. Section 172 of the Companies Act 2006, in imposing a duty on a director to promote the company's success, directs a director specifically to have regard "to the likely consequences of any decision in the long term" (my emphasis) and "the impact of the company's operations on the community and the environment" and "the desirability of the company maintaining a reputation for high standards of business conduct." The shareholders exercise significant sanctions over the directors. Directors of all public companies are subject to annual appointment by the shareholders, directors' long-term service contracts require shareholders' approval (section 188) and a director can even be removed by ordinary resolution before his term of office expires notwithstanding anything in his agreement with the company (section 168). There is, therefore, considerable legal scope for shareholders collectively to intervene in the running of their company if they consider that the directors have been feathering their nests unjustifiably (by e.g.moving a resolution to place a cap on disproportionate salaries or bonuses) or have brought the company into disrepute or acted unethically. In the present economic climate the sooner shareholders start exercising their muscle the better.
Yours etc.