Shareholder-focused capitalism beginning to fray

BoE’s Haldane: Shareholder-focused capitalism beginning to fray

The Bank of England’s chief economist has questioned the UK’s corporate governance model – suggesting it should be overhauled to focus not just on shareholders but wider society, too.

During a speech at Bloomberg’s London headquarters this week, Andy Haldane said the UK should undertake “legislative change” to move corporate governance rules away from focussing on shareholders. Instead, he suggested considering all stakeholders such as consumers, workers and society’s wider goals, City AM reported.

According to the report, Haldane stated that although shareholder-focused capitalism had led to substantial wealth and growth, the model is beginning to “fray”.

Highlighting years of wage inertia and rising inequality in the UK, Haldane said these factors showed that the “moral compass of capitalism” was no longer pointing “as due north as it might” – and recommended a fresh approach to corporate governance.

Shareholder-focused capitalism beginning to fray
Andy Haldane, The Bank of England’s Chief Economist

“Lots of things are possible, within that we should not rule out, perhaps even we should rule in, the possibility of making legislative change,” Haldane is quoted as saying in the City AM report. “Our current Companies Act 2006 reinforces the notion that shareholders should assume a position of primacy… perhaps it’s time to give that model and law a rethink.”

Haldane’s stance echoes similar attempts by other countries to move away from a shareholder primacy model.

Last year, the US’ Business Roundtable, which represents America’s top CEOs, stated company bosses should run their business for the benefit of all stakeholders, including customers, employees, suppliers, communities and shareholders.

More than 180 CEOs signed the Business Roundtable’s updated corporate governance agreement that eliminates shareholder primacy and commits to represent the interests of “all Americans”.

This is the first time since 1997 that the statement has not endorsed principles of shareholder primacy, where corporations exist principally to serve shareholders.

Speaking at the time, Jamie Dimon, chairman and CEO of JPMorgan Chase and chairman of Business Roundtable, said: “The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.

“These modernised principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans,” he said.

Last Updated: 27 February 2020
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