Friday, 30 May 2014

UK: "Unfair shares" - a speech by Andrew Haldane and a question about governance reform

Earlier this month, at the Bristol Festival of Ideas, Andrew Haldane - the Bank of England's executive director for financial stability - delivered a speech titled "Unfair Shares": see here (pdf). The speech explored the topic of inequality from the perspective of central banking but also considered corporate governance. It concluded:
This governance structure [granting primacy to shareholders] has stood the test of time. But it is not without distributional consequences. If power resides in the hands of one set of stakeholders, and they are short-termist, then we might expect high distribution of profits to this cohort, at the expense of ploughing back these profits (as increased investment) or distributing them to workers (as increased real wages). To some extent, this matches the stylised facts on rising inequality – rising executive and shareholder compensation and faltering real wage growth. The shareholder model may, ironically, have contributed to unfair shares.

If so, this suggests that one avenue worth considering further is corporate governance reform. A set of corporate incentives which had as its fulcrum long-term company value and which more fully reflected the interests of a wider set of stakeholders might help rebalance the scales – for example, towards investing rather than distributing. Such an alternative model is certainly not without precedent. It is found in a number of countries around the world (Mayer (2013)).

Inequality and corporate governance are deep, structural issues. Central banks do not have many, perhaps any, of the solutions to these problems. But the stakes – a more stable, faster-growing, fairer society – could not be higher. There is a collective public policy interest in getting them right."

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