On 8 June U.K. citizens go to the polls—again: the fourth time in four years.  The governing Conservative (Tory) Party under Prime Minister Theresa May is widely expected to win the general election with an increased majority. But the main opposition leader, Labour’s Jeremy Corbyn, has consistently defied public expectations, and in the wake of his manifesto’s release—which is the first and only time his party has unanimously agreed on anything during his time in charge—pollsters have cut the Tories’ lead and substantially shortened the odds on Corbyn reaching Number Ten Downing Street.

Whichever way the U.K. general election turns out, it looks highly likely that even without the regulatory and legal changes that Brexit will herald, the country is heading toward some significant corporate governance reforms and beefed-up enforcement to curb corporate misbehaviour.

Even before Theresa May became Prime Minister last year, she had set out plans to tackle executive pay, have worker representation on company boards, and re-examine rules for corporate takeovers—especially by foreign companies hoping to snap up U.K. firms, asset strip them, and move production overseas or exploit the process to avoid tax.

All these promises are again reiterated in the Tories’ latest manifesto.

The government wants to change the rules so that foreign investors looking to buy U.K. companies will be subject to greater scrutiny about their intentions from the outset of the bid process. It also wants the power to pause bids if necessary to allow it to check on whether the deal still benefits the United Kingdom. Furthermore, the Tories want to ensure that all promises and undertakings made in the course of takeover bids can be legally enforced afterwards. Additionally, there will be limits surrounding foreign-ownership of companies connected to critical infrastructure, energy, and defence contracts.

Given that senior corporate pay has risen far faster than corporate performance, the Conservatives have made an election promise to pass legislation to make executive pay packages subject to strict annual votes by shareholders, as well as force listed companies to publish the ratio of executive pay to that of the broader workforce, which has grown from 47:1 in 1998 to 128:1 in 2015. Companies will also have to explain their pay policies better, particularly around complex incentive schemes; and share buybacks, which can be used to artificially hit performance targets and inflate executive pay, will be re-examined.

To ensure employees’ interests are represented at board level, the Tories say they will change the law to ensure that listed companies will be required to either nominate a director from the workforce, create a formal employee advisory council, or assign specific responsibility for employee representation to a designated non-executive director. Employees will also be given a right to request information relating to the future direction of the company, though this will be “subject to sensible safeguards.”

“Unfortunately, the election has turned into a bit of an arms race, where parties compete to out-promise each other.”
Stephen Martin, Director General, Institute of Directors

The Conservatives have also vowed to take measures to close the gender pay gap, such as requiring companies with more than 250 employees to publish more data on the pay gap between men and women, while also pushing for an increase in the number of women sitting on boards of companies.

While these proposed reforms relate to publicly listed companies, in the wake of the BHS scandal the Conservative government says that it will also consult on how it might strengthen the corporate governance of privately owned businesses if re-elected.

The Conservatives also aim to tackle particular industry sectors where governance abuses are deemed to be serious. For example, the government wants to set up a digital charter and regulatory framework that will introduce a sanctions and compliance regime compelling internet and social media companies to monitor and remove content that breaches U.K. law. The Tories add that they will also introduce an industry-wide levy on social media companies and communication service providers to support awareness and preventative activity “to counter internet harms” as is already the case with the gambling industry.

The Tories also plan to legislate for tougher regulation of tax advisory firms, as well as “take a more proactive approach to transparency and misuse of trusts.” Additionally, the party says that it will strengthen the hand of regulators and enforcement bodies to order fines against companies breaking consumer law, as well as make financial redress. “We will explore how to give consumers a voice in the regulation of business. We will put the interest of vulnerable consumers first, including considering a duty on regulators to weigh up their needs,” says the Tory manifesto.

One of the most controversial proposals in the Conservatives’ manifesto is to incorporate the Serious Fraud Office (SFO) into the National Crime Agency, the U.K. enforcement body that investigates every other major crime bar fraud. The government says that this will improve intelligence sharing and bolster the investigation of serious fraud, money laundering, and financial crime. Many are unconvinced, however, especially as the SFO has recently concluded some major cases. “The decision to include this as part of the manifesto is bizarre,” said Peter Binning, a founding partner of law firm Corker Binning and a former SFO prosecutor. “What do the Tory party think they are doing?”

Binning said the combined investigation and prosecution capability within a single organisation has been hugely advantageous to the SFO, yet this would be lost if it became a department within a purely investigative agency.

Stephen Parkinson, head of criminal litigation at law firm Kingsley Napley, has called the manifesto pledge “a dreadful decision” and “a real step back from the U.K.’s commitment to tackle serious economic crime.”

The general election and implications for Brexit

One of the key battlegrounds of the U.K. general election will be over how the main parties plan to negotiate and pursue Brexit.
The governing Conservatives have said that the United Kingdom will leave the Single Market in 2019, and that in the absence of a trade agreement, the UK’s post-Brexit relationship with non-EU countries, including the US, will be governed by the World Trade Organisation (WTO) rules.
The government says it will seek to replicate all existing EU free trade agreements and support the ratification of trade agreements entered into during our EU membership.
In terms of ensuring continuity with domestic law, the Tories want to enact a Great Repeal Bill, which is designed to convert EU law into UK law, thereby “allowing businesses and individuals to go about life knowing that the rules have not changed overnight”, according to the party’s manifesto.
Like the Conservatives, Labour accepts the Brexit referendum result. However, the party has vowed to scrap the Conservatives’ Brexit White Paper and replace it with “fresh negotiating priorities” that have a strong emphasis on retaining the benefits of the Single Market and the EU customs union.
If elected, Labour will also drop the Conservatives’ Great Repeal Bill, replacing it with an EU Rights and Protections Bill that will ensure there is no detrimental change to workers’ rights, equality law, consumer rights or environmental protections as a result of Brexit. The party also wants to immediately guarantee existing rights for all EU nationals living in Britain and secure reciprocal rights for United Kingdom citizens living in EU countries.
However, with the exception of the UK Independence Party and Plaid Cymru (Welsh Nationalist Party), the United Kingdom’s other main political parties—the Liberal Democrats, the Scottish National Party, and the Green Party—all oppose Brexit, with the Liberals wanting to hold a second referendum on the matter. While none of these parties are expected to win the election, they may be able to broker power if Labour fails to win outright or if the Tories lose their majority in Parliament.
—Neil Hodge

Labour’s manifesto, on the other hand, addresses many of the same issues, but offers different solutions and proposals.

For example, Labour wants to amend the takeover regime to ensure that businesses identified as being “systemically important” have a clear plan in place to protect workers and pensioners when a company is taken over. Labour would also legislate to reduce pay inequality by introducing an “excessive pay levy” on companies with staff on very high pay.

Labour stands alone, however, on some of its more controversial policies. For example, the party has stated that it wants to renationalise key industries, such as the railways (once current franchises expire), utilities, and the Royal Mail postal service, and following the crises at Lloyds TSB and RBS, Labour would overhaul the regulation of the U.K.’s financial system by putting in place a firm ring-fence between investment and retail banking to afford better consumer protection.

Other Labour plans include amending company law so that directors owe a duty directly not only to shareholders, but to employees, customers, the environment, and the wider public. The party would also give more people a stake—and a say—in the economy by doubling the size of the co-operative sector and introducing a “right to own,” making employees the buyer of first refusal when the company they work for is up for sale. And as a way of improving transparency and holding contractors to account, Labour would extend the provisions of the Freedom of Information Act to include private companies that run public services.

A long-standing campaign issue for Labour has been corporate taxation. Unhappy with the corporate tax rate being the lowest of any G7 country (it currently stands at 19 percent) and wary of the prospect of the Tories cutting it to 17 percent, Labour not only has plans to raise the rate to 26 percent by 2020, but it is intent on making companies pay what they owe.

For example, HM Revenue & Customs, the U.K.’s tax enforcement agency, would be given more resources to crack down on companies that avoid tax under Labour plans. Furthermore, the party has pledged to clamp down on tax avoidance through a Tax Transparency and Enforcement Programme and “act decisively” on tax havens, introducing strict standards of transparency for crown dependencies and overseas territories, including a public register of owners, directors, major shareholders, and beneficial owners for all companies and trusts.

Labour also wants to “build human rights and social justice into trade policy.” The party’s manifesto says that it will ensure that any trade agreements it makes will not undermine human rights and labour standards and that U.K. Export Finance support is not available to companies engaged in bribery or corrupt practices. It would also scrap parallel investor-state dispute systems for multinational corporations. These are agreements that enable companies to take legal action against governments if, for example, a country seizes an investment or passes new laws which make it worthless (such as subsequently banning a product that the company produces). Instead, it says that it “will open a dialogue with trading partners on alternative options that provide investor protection while guaranteeing equality before the law.”

More generally, the party wants to tighten the rules governing corporate accountability for abuses in global supply chains by enforcing the provisions of the Modern Slavery Act, especially with regard to reporting on due diligence in supply chains (the Tories are also keen to encourage other countries to follow the U.K.’s lead). Labour also wants to extend the remit of the Groceries Code Adjudicator, the body that oversees the relationship between supermarkets and suppliers, beyond direct suppliers to ensure fair treatment for all those producing goods for the United Kingdom’s largest supermarkets.

Making better use of government’s bargaining power when awarding contracts to private companies is another Labour pledge, and the party is ready to exert pressure on contractors (both working on behalf of central and local government) to follow fair and ethical corporate practices in exchange for a slice of the annual £200bn bill that the government spends on procuring their services. For example, Labour will re?quire contracting firms to pay their taxes in full, recognise trade unions, respect workers’ rights and equal opportunities, protect the environment, provide training, and reduce boardroom pay excesses by moving toward a 20:1 gap between the highest and lowest paid employees.

Labour will also use government procurement to ensure that anyone bidding for a government contract pays its own suppliers within 30 days, while also developing a version of the Australian system of binding arbitration and fines for persistent late-payers.

The reaction to both manifestos from business has been mixed, with the real issue that companies want assurance on—what shape Brexit will take—being side-lined by an early snap election. The pro-business Confederation of British Industry (CBI) bemoans the “stifling new rules, regulations, and burdens on firms” that Labour will introduce if elected and so has thrown its support (unsurprisingly) behind the Tories, though with some caveats (it is not keen on companies having to face prescriptive rules about executive pay disclosure and worker representation on boards, for example).

However, Stephen Martin, director general of business lobby group the Institute of Directors, is unimpressed with much of what either party has to offer. “Although this is a short election campaign, businesses have been deluged with policy proposals, and it is a criticism of politicians of all parties that pledges have been made with seemingly little thought of the consequences,” he says. “Unfortunately, the election has turned into a bit of an arms race, where parties compete to out-promise each other.”