Corporate Governance: The miscommunication between business and politics

Businesspeople and politicians often argue that they are very different animals, governed by different motivations, neither side understanding the other. It is not true. Both are united by a common shared belief: they insist that they care only for the long-term, but whenever they spot a short-term temptation, they go for it with as much speed as they can muster.

Never has this common bond been more obvious as we approach a General Election amid an extraordinary period of economic despair. Politicians have to show they have a grip of whatever it is they believe the public want. People in business want the policies of whoever forms the next government to provide them with some certainty, an ability to operate with a degree of freedom and some clue about the tax system.

What will happen is that politicians will blitz us with business manifestos over the next few weeks, commentators will exclaim that this party or that party has finally got it and understands how business works. Then in a year’s time the whole fragile compact will have fallen apart.

The reason for this is simple. Governance structures in companies, just like those among political organisations, lack the requisite mechanisms for taking even the useful stuff on board. Ministers have little clue about business, few of them have any direct experience of business, outside of being endlessly lobbied by representatives of business organisations. People in business have very little clue about how politicians come to decisions about business and they can see very little evidence from what activity there is that anything worthwhile is being done.

So it was probably a good thing that, when the Financial Secretary to the Treasury Stephen Timms spoke at the annual dinner of the Institute of Chartered Accountants in England and Wales in March, he got his speech out of the way before the dinner got underway and drink was quaffed. Otherwise there might have been a temptation among some of those present to start slinging bread rolls amid the policy grandstanding.

“Tax policy,” he announced, “is going to be at the heart of the political debate in the period ahead. It’s no time for amateurishness or populism”. Now that is a wholly admirable sentiment, almost unarguable. But it is not going to happen and no one outside of, or probably inside, Whitehall thinks so. The number of people in the House of Commons who understand how tax policy works is a tiny proportion of its membership. And no government of any hue is going to eschew populism, given a chance.

The problem is the lack of understanding on both sides of the divide of how the other side goes about things. People in business would like to see a plan, a long-term effort to learn from and sort out the aftermath of the economic crisis, to plan for the eventuality of another one. But politicians cannot plan beyond the next election. The conclusion to Timms’ speech seemed realistic. “We’re just as serious as you about keeping the UK’s tax system competitive,” he said. “We understand that it underpins the investment, innovation and hard work that will be essential in delivering long-term sustainable growth that only the private sector can deliver. Let’s work together to achieve it”.

Everyone in that room and in business knows that, even if only the private sector could achieve the growth required, a government of any persuasion is not going to stand back and wave business through. Who would elect them next time around if the perception was that business had provided the economic success rather than government?

Both sides in this deep divide need to be more realistic about the motivations, rather than the policies, which each of them are putting forward. But that is not the sort of debate you get anytime, let alone at general elections.

Robert Bruce is a leading commentator on accountancy issues