Pay and Accountability
We might have “turned the tide” in the fight against coronavirus, as UK Prime Minister Boris Johnson said at Tuesday’s media briefing, but the prevailing sentiment in the country from boardrooms to active working living rooms remains one of uncertainty. We do not know how long the pandemic will rule our lives or how extensive the economic damage left in its wake will be. But we can reaffirm what we deem acceptable standards of corporate behaviour, and a sharp critical focus of corporate governance must inevitably remain on pay.
Just a month or so after claiming the headlines for pay cuts at management level to show solidarity with workers, UK companies including Foxtons, Persimmon, Severn Trent, Burberry and Bakkavor are reverting to full pay, the Financial Times reported yesterday.
Burberry stands out as a FTSE 100 name that claimed its spotlight among Covid-19 centred headlines for its corporate stance and all its efforts around the provision of Personal Protective Equipment (PPE). The luxury fashion brand even had a story around its name that turned out to be not entirely accurate whizzing around on social media platforms amid the height of the frenzy of UK media coverage on the shortage of PPE.
Last month Burberry joined the ranks of big companies cutting dividends in the fall-out from the pandemic. But it was pressure from the UK’s financial regulators in April that first led to the largest lenders changing their behaviour on dividends and bonuses. "Moral force" on the boardroom was cited by a UK chairman to the FT as carrying considerable weight in the matter.
There are other British businesses that took pay cuts at senior levels which are still reviewing decisions on whether to reinstate full salaries where they have been cut - WPP and Dunelm - are mentioned. Now the time frame for corporate reaction to the pandemic appears to have accelerated, as this week HSBC reaffirmed job cuts put on hold, with 35,000 jobs to go in the medium term as part of its restructuring.
It seems extraordinary for any business to need a review to decide whether the time is right – in June 2020 – to widen the income disparities between senior executives and everyday workers in Britain. Research from the High Pay Centre, the independent non-party think tank, shows that in the past five years the FTSE 350 has spent a combined £321million on CEO pay, paying out £26 billion in dividends and £42 billion in profits. Meanwhile, the Office for Budget Responsibility has estimated £42 billion as the total cost of the job retention scheme.
Those businesses that have considered courting a spot to bask in the glow of ‘responsible capitalism at the start of 2020 might be well advised to consider their actions carefully as investors step up their stewardship role as their own pandemic response - discussed in the last Governance Watch.
Corporate arrogance also does not sit well set against the government’s message that ‘we are all in it together’ for buy-in from the public on adhering to lockdown measures and their easing. Corporate governance circles in Britain have spent over a decade talking about the need to establish trust and change corporate culture. Given the latest information on the UK economy, the question of executive pay and pay disparity in a business is no longer just a remuneration specialist’s concern, it is about lifeblood for too many working people.
Race, Ethnicity and Pay
Any period of trauma involves intensity of experience. The collision between the coronavirus pandemic and the Black Lives Matter protests that have swept over the Atlantic to the UK have led to a doubling of that intensity, and helped to fuel the protest. At the heart of it is the long-standing issue of inequality around a subject Britain finds very difficult to discuss - race.
Add in the growing recognition of BAME vulnerability to Covid-19 and the high numbers of Britons who are BAME and front-line workers in one form or another and you have a stark reality. This is now an issue that has for the first time gained white support on British streets in protest from a younger generation. It is unlikely to recede quietly, as it has in the past, from the spotlight. For a country that is keen to make the most of its talent after leaving the European Union, it is also about tapping much-needed potential.
As a corporate governance concern race, inequality and denial of opportunity speaks firmly across the United Nations' Sustainable Development Goals, increasingly looked to by boardrooms and corporate leadership for guidance. In times of severe economic hardship, all focus inevitably comes back to income, and pay.
It has been three and a half years since the main recommendations of a UK government review by Ruby McGregor-Smith into racial disparities in the workplace were left hanging in the air. While they have not been acted upon as yet, another inquiry was launched last Sunday by the Prime Minister into racial inequality.
The last government review was entitled The Time For Talking Is Over: Now Is The Time To Act. Yesterday Baroness McGregor-Smith, now president of the British Chambers of Commerce, said "The big gap is ethnicity pay reporting… and that needs to change", reported the FT.
Legal requirements nudging businesses along over the last decade on gender equality still encounter barriers, but for accountability there has to be transparency first. There may be difficulties in gathering data on ethnicity and self-identification, but they are not insurmountable in a nation that has - for all the criticism – adopted digital transformation at quite a pace in essential services since the virus arrived on its shores.
If businesses do not step forward to address the reality of UK's racial inequality soon, they will be shooting themselves in the foot with their relationship with their stakeholders, now and in the future.
Stakeholders and ESG
In February 2019 Prime Minister Theresa said she thought the young people protesting climate change as part of the international Fridays For Future movement should be in their classrooms instead. Since then, climate risk and the agenda for action on climate change has steadily moved up the agenda for boardrooms.
Unilever, one of Britain's oldest and biggest businesses has chosen to change its structure in favour of single holding company based in London and it has also pledged to invest €1bn (£900m) over the next decade in environmental projects, with a 10 year plan focusing on greener transport and production.
The FTSE100 business said it was removing complexity and further strengthening Unilever’s corporate governance, creating for the first time an equal voting basis per share for all shareholders.
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