In law, America tends to follow in the footsteps of its older sister, Britain.  Sure, sure, we went our own way with that little Constitution thing back in the day.  But as of late, and particularly in the world of securities law and corporate governance, we’ve been following in their footsteps a bit.   Wall Street is still learning to grapple with say-on-pay; the City has dealt with it for a decade now.  Last year the SEC signalled (but hasn’t yet said – oh, how they tease accounting nerds!) that we would eventually follow the rest of the world and adopt IFRS.  So US boards might want to take note of the recent arguments across the pond that shareholders need more power to regulate boards and executive pay.

Last week, both British behemoths of business reporting, the Financial Times and the Economist, ran stories highlighting what the FT called a “Crisis in Capitalism“.  The takeaway:  inequality between top executives and average workers threatens to undermine Anglo-American faith in capitalism, which currently hovers at a level just slightly above Russia’s.  These articles consistently return to variations of one particularly stirring statistic:  in 1965, the average CEO made 24 times the average worker; as of 2010, the average CEO made 325 times the average worker.  More and more Brits and Yanks feel the system is rigged, and such feelings are the roots of Ron “End the Fed” Paul’s strong primary showings and the lingering Occupy movement (if these two groups could agree on the way to best ruin the economy, we’d be in trouble).

And in case you had forgotten, the SEC plans to unveil rules this year enacting Section 953 of Dodd-Frank, which requires proxy statements to disclose a comparison between median employee pay and the CEO’s pay.   Fuel, I would like you to meet Fire.  Any corporation with ongoing labor problems would be wise to review their executive remuneration packages before an embarassing statistic pops up mid-collective bargaining.  As an added bonus, this same provision requires disclosing the relationship between executive compensation actually paid and the financial performance of the issuer.  So, done wrong, Section 953 compliance has the potential to piss off both labor and capital. 

In England, companies have dealt with stronger shareholders for a long time now.  There, boards adopt proactive communication strategies to appease angry shareholders (who can fire directors that they dislike, unlike in America where you can merely not reelect a director).  Moreover, changing compensation practices to emphasize long-term shareholder returns will please the shareholder advisory firms like ISS. 

That all said, even if the UK makes significant changes to its corporate governance rules, I wouldn’t expect the US to follow suit this time.  We don’t have the political will or the political ability that Britain does.  First, David Cameron is leading the call for reducing corporate excess; I don’t think we’ll see Mitt Romney doing that anytime soon.  Second, the British government’s ability to quickly pass legislation is the kind of stuff that makes American political scientists stare off into the distance and sigh wistfully. 

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As an addendum: you know what makes writing a well-linked blog difficult?  Wikipedia’s blackout.  Well played, Mr. Wales…