The chief economist of the Bank of England has suggested Britain should make “legislative change” to shift corporate governance rules away from a sole focus on shareholders to instead consider consumers, workers and social goals.  Andy Haldane also said Britain needs a “rethink” about its banking sector, suggesting that regional, development and infrastructure banks could help re-balance finance towards smaller and medium-sized businesses around the country.

In a speech at news company Bloomberg’s London headquarters, Haldane said that although free-market, shareholder-focused capitalism had led to an incredible amount of wealth and growth, the model is beginning to “fray”.

He said a decade of wage stagnation in Britain and rising inequality showed that the “moral compass of capitalism” was no longer pointing “as due north as it might”.

Haldane, who has been chief economist at the Bank since 2014, said that “the time is right for a refresh” of the capitalist model, particularly when it came to corporate governance.

“Lots of things are possible, within that we should not rule out – perhaps even we should rule in – the possibility of making legislative change,” he said.

“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.”

It is not the first time Haldane has questioned the UK’s corporate governance model that says companies exist for the benefit of their shareholders.

In 2018, he called for “careful reflection” about the role of companies, and suggested they should recognise “the plurality of stakeholders – shareholders of course, but also customers, clients, creditors, workers and wider society”.

Such concerns have gained prominence in recent years. Last year, the powerful Business Roundtable lobby in the US said companies should provide economic benefits to all, not just investors.

Today, Haldane also said questions needed to be asked about the UK’s banking model.

He said: “There could be a point beyond which too much banking is not good for growth… but in fact detracts from growth perhaps by sucking resources into the financial sector.”

Banking has been repurposing itself since the crisis, he said, but asked ‘has it gone far enough in doing that?’

‘The Faultline in financing to small and medium enterprises has existed for at least a century”

‘Rethinking about the role of regional banks, development banks and infrastructure banks might be part of the solution’

 

Author: Harry Robertson. City Am.  February 2020