Theresa May moves the goalposts on economic strategy

When British prime ministers assume office, they usually deliver high-sounding speeches. Margaret Thatcher famously quoted from St Francis of Assisi back in May 1979.

Theresa May moves the goalposts on economic strategy

Maggie’s first female successor did not disappoint in this regard. The daughter of a vicar, Theresa May is instinctively at home with uplifting thoughts.

Last week her turn came and she delivered what turned out to be a pretty well-crafted oration in which she lamented the gap between the haves and have nots in British society.

One wonders how her high-sounding aspirations will bear up under the relentless pressure of events.

Ms May seems keen to distance herself from the metropolitan slickness of the Cameron-Osborne regime.

Shortly before his sacking, the chancellor outlined his low-tax corporate vision, one that would certainly concern people in Ireland given our continued dependence on foreign direct investment.

If we are to take the new PM’s comments seriously then we may expect to see an economic strategy that is less heavily focused on the goal of attracting in skills and capital.

Perhaps we may be moving into an era where there is less emphasis on tax cuts for the high skilled and high paid and more emphasis on building up the skills of the entire population.

Which, of course, would be good news for Ireland given the close ties between our labour markets and the tendency for London to act as a vacuum of young Irish talent. As Brexit gradually becomes reality, Ms May and her new chancellor, Philip Hammond, under the pressure of events, could find themselves sticking rather more closely to the Osborne tax model.

What is really interesting is that Ms May’s philosophy appears to be close to that of German chancellor Angela Merkel. Bizarrely, Britain may have its most philosophically continental European prime minister since the time of Edward Heath, the man who brought the UK into the Common Market.

Ms May’s philosophy is instinctively centrist. This was made apparent by the deep-seated reforms of corporate governance, including binding shareholder votes on executive pay and representation for both employees and consumers on company boards.

Ms May wishes to see greater curbs on executive pay. She favours greater investment in training and an industrial strategy. One obvious model is the German co-determination model which dates back to the 1950s. A three-way structure of employee involvement is provided for in the case of larger companies.

At the apex of the corporate tree, you have the supervisory board which formulates policies and develops plans.

Its role is a strategic one. Typically there are 11 members, five elected by the workers, five by the shareholders, and with a well-respected neutral chairman holding the casting vote.

Next, there is the management board, charged with day-to-day running of the company and, finally, works councils that are responsible for matters at shop floor level.

Well-functioning works councils are seen as critical to the functioning of the co-determination model.

Many academics believe co-determination — by harnessing the talents and goodwill of employees — played a critical role in the German economic miracle of the 1950s and 1960s and continues to be a central factor in the country’s ascendancy today.

The big problem Germany faces is demographic. A growing shortage of skills, due to the ageing of the indigenous population, means the government’s attitude to immigration differs sharply from that of Ms May who presides over a country with an increasing population.

In Ireland, employee stock ownership emerged as a viable model in State companies in the 1990s, the best-known example being that of Telecom Éireann, later the privatised Eircom.

The idea behind the concept of the employee stock ownership plan (ESOP) was that the interests of employee and management would become much more closely aligned.

In practice, multiple changes of ownership and exercises in job shedding mean fewer and fewer members of the Eircom ESOP ended up working for the company. It did generate up to €95,000 tax free for some of its 14,157 members by the time it was wound up a few years ago.

The whole stock ownership model has taken a backseat since the onset of recession, though employee share ownership could recover in popularity as a concept in the event of a sustained recovery, particularly as a means of staving off wage inflation.

However, Ms May and her team are more likely to focus on non-financial employee democracy as they may not wish to bite the hand of the bosses who feed them.

They may be interested, for a start, in the worker director model that has taken hold in Irish State companies.

In 1977, labour minister Michael O’Leary steered the Worker Participation Act through the Oireachtas. This provided for the appointment of directors, elected by fellow employees, to a list of State boards. Mr O’Leary believed in the idea of the company as a social institution, an emerging concept at the time.

In 2012, Tasc, along with the national worker directors group, published a study on worker board participation. It alluded to continued limits on the operation of the idea in Ireland where worker directors are confined to the boards of State enterprises and a number of State agencies.

National level social partnership, formal or informal, has been the preferred route here, with employers showing little backing for enterprise-based industrial democracy at the top level, at least.

The report noted that the reorganisation of commercial semi-states has resulted in a reduction in the role of worker directors. Some of the directly elected have been replaced by representatives. Tasc reported a positive reaction to worker directors, with most considered to be loyal, trustworthy, and intelligent. Many had a strong knowledge of the operations of the organisation and their presence helped avoid executive group think.

However, most worker directors are excluded from the key audit and remuneration committee suggesting that levels of mutual trust only go so far. There was also little support among management for the extension of the worker director model into the private sector.

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