12th July 2016 – Clients should look beyond the obvious quotes from Theresa May’s speech in Birmingham yesterday because there is much in it to explain how we got here and signal some changes that will be on the way. Still the central message was that “I couldn’t be clearer. Brexit means Brexit. And we’re going to make a success of it. There will be no attempts to remain inside the EU, no attempts to rejoin it by the back door, and no second referendum.”

In our view there is little purpose served by being despairing or dismissive of the reasons behind the BREXIT result.   There is an old saying in life assurance – “There is nothing more uncertain that the exact length of any individual’s life (‘we know not the time nor the hour’ etc).  But there is nothing more certain than the average length of one thousand people’s lives.” With that in mind, we have been looking at the structural drivers of the BREXIT vote – why did over 17 million voters embrace the idea and what should that tell you about current and future direction of policy, the economy and business?

Yesterday May’s speech was the best commentary yet of some of the structural underpinnings of the BREXIT vote and how these might translate into change.  Apparently Theresa May MP, now Prime Minister Designate, is somebody who prides herself in meaning (and delivering) tomorrow what she says today. What is really remarkable is that her immediate audience for these comments was the Tory party member-electors, not a broader or mixed audience that one might naturally assume to be more sympathetic to the critical tone.

Changes in corporate governance were conspicuously highlighted. There is a risk that these comments will get lost in the whirlwind of a busy news cycle so we want to put these in front of our clients and followers.  These comments were meant as the central part of May’s policy platform that could withstand nine weeks of robust debate and scrutiny, so we shouldn’t dismiss them lightly.

But first some explanation of the context for the BREXIT vote from the speech.

“[R]ight now, if you’re born poor, you will die on average nine years earlier than others. If you’re black, you’re treated more harshly by the criminal justice system than if you’re white. If you’re a white, working-class boy, you’re less likely than anybody else to go to university. If you’re at a state school, you’re less likely to reach the top professions than if you’re educated privately. If you’re a woman, you still earn less than a man. If you suffer from mental health problems, there’s too often not enough help to hand. If you’re young, you’ll find it harder than ever before to own your own home………….

If you’re from an ordinary, working-class family, life is just much harder than many people in politics realise. You have a job, but you don’t always have job security. You have your own home, but you worry about mortgage rates going up. You can just about manage, but you worry about the cost of living and the quality of the local school, because there’s no other choice for you………….

Talk to almost any ordinary member of the public, and the frustration they feel about the loss of control over their day-to-day lives is obvious………They are the ones who made real sacrifices after the financial crash in 2008. Some lost their jobs, some reduced their hours, others took a pay cut. Wages have grown, but only slowly. Taxes for the lowest paid went down, but other taxes, like VAT, went up. Fixed items of spending – like energy bills – have rocketed. Monetary policy – in the form of super-low interest rates and quantitative easing – has helped those on the property ladder at the expense of those who can’t afford to own their own home…………..

There isn’t much job security out there. Some find themselves exploited by unscrupulous bosses. And, yes, some have found themselves out of work or on lower wages because of low-skilled immigration. It’s harder than ever for young people to buy their first house. There is a growing divide between a more prosperous older generation and a struggling younger generation. And there is a gaping chasm between wealthy London and the rest of the country. When you add all of these things up, the only surprise is that there is so much surprise in Westminster about the public’s appetite for change. And make no mistake, the referendum was a vote to leave the European Union, but it was also a vote for serious change.

Changes in corporate governance

“I want to see changes in the way that big business is governed. 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 – and we’re going to have not just consumers represented on company boards, but employees as well.”

“[One of the ways] in which I want to make our economy work for everyone is by getting tough on irresponsible behaviour in big business. ………The FTSE, for example, is trading at about the same level as it was eighteen years ago and it is nearly ten per cent below its high peak. Yet in the same time period executive pay has more than trebled and there is an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses.

So as part of the changes I want to make to corporate governance, I want to make shareholder votes on corporate pay not just advisory but binding. I want to see more transparency, including the full disclosure of bonus targets and the publication of “pay multiple” data: that is, the ratio between the CEO’s pay and the average company worker’s pay. And I want to simplify the way bonuses are paid so that the bosses’ incentives are better aligned with the long-term interests of the company and its shareholders.

I also want us to be prepared to use – and reform – competition law so that markets work better for people. If there is evidence that the big utility firms and the retail banks are abusing their roles in highly-consolidated markets, we shouldn’t just complain about it, we shouldn’t say it’s too difficult, we should do something about it.

And tax. We need to talk about tax. ……[We] understand that tax is the price we pay for living in a civilised society. No individual and no business, however rich, has succeeded all on their own. Their goods are transported by road, their workers are educated in schools, their customers are part of sophisticated networks taking in the private sector, the public sector and charities. It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to your fellow citizens, you have a responsibility to pay your taxes. So as Prime Minister, I will crack down on individual and corporate tax avoidance and evasion. 

It is not anti-business to suggest that big business needs to change. Better governance will help these companies to take better decisions, for their own long-term benefit and that of the economy overall.

The full text of Ms May’s remarks (which we would encourage you to read) can be accessed at http://www.theresa2016.co.uk/we_can_make_britain_a_country_that_works_for_everyone

Brendan Lenihan is Managing Director of Navigo Consulting which specialises in business planning, strategy, governance and change. (www.navigo.ie) He is a Chartered Accountant and a former President of the Institute of Chartered Accountants in Ireland.  During the course of his career, he was a Director of a number of significant investment and consumer businesses that operate in the UK market. 

Navigo Consulting is a business consultancy in the areas of strategy and business planning; improving governance and navigating major change. Our consultants are experienced professionals and have seen business from a number of perspectives including both as executive and non-executive Directors of very significant international businesses as well as years as professional consultants.  If we can help your organisation to succeed with a business objective that is important to you, contact our Managing Director, Brendan Lenihan on (01) 477 3404 or contact us through www.navigo.ie