Yesterday lunch-time a High Pay Centre panel bringing together politicians, trade union leaders and influential commentators debated the current financial climate and the way towards a more ethical capitalism.
Writer and economist Will Hutton, opened the discussion with an allusion to Barack Obama’s recent election broadcast on the nature of wealth creation. He supported Obama’s argument that enterprise is an act of co-creation between management, business, suppliers and employees, yet we have allowed a myth to take hold of all-powerful super-executives on whom the company’s success is wholly dependent.
Re-iterating some of the points made in the recent Kay Review, Will cited the example of the historic British industrial companies ICI, GEC and Rolls Royce. Of the three, only Rolls Royce, still exists. While they pursued governance policies with long-term aims and good investment practices, ICI and GEC, collapsed in the pursuit of high short-term profits.
Will noted that ICI and GEC executives had been amongst the executives who claimed in the 1990s that German-style two tier boards with workers representation would be completely unworkable in the UK – yet their alternative course, based on speculative acquisitions in obeisance to their short-term share price, rather than investment in genuine innovation and productivity, could hardly have proved more disastrous.
Will suggested that these lessons on short-termism had not been heeded, and that radical policy prescriptions to reform British capitalism were required. He echoed the call made by the High Pay Centre for worker representation on remuneration committees, and suggested that shareholder dividends should be proportionate to the length of shareholding.
Rachel Reeves MP, Shadow Chief Secretary to the Treasury, said that people want a different environment in which the proceeds of growth are fairly distributed. Rachel commented that the way the economy functions is fundamentally flawed. We pay tax credits and pension credits to compensate low pay and a lack of pension provision when really we should just be ensuring a living wage and a decent pension for all. Priorities for 2015 will be remodelling and rebuilding the economic environment so that it works for ordinary people rather than a few at the top. We cannot assume, she said, that when the economy starts growing again proceeds will trickle down to those who most need them. If the minimum wage had increased at the same rate as executive pay since 1999, it would now be at £19 per hour. Instead, it has just risen to £6.12.
Noting the lofty ambitions of our event title, Frances O’Grady, Secretary General Designate of the TUC commented that the aim of restoring morality to business would be as difficult as restoring compassion to conservativism. She said that the voluntary approach to pay regulation simply does not work and that the scale of the problem is huge and growing. The top 10% of society now own £4.5 trillion of the country’s wealth, up by £500 billion on last year. This wealth accumulation, including the £30 billion of bonuses that were paid out last year, is seen despite corporate scandals such as Libor and widespread public outrage at the conduct of the financial sector.
Frances highlighted the fact that this obscene concentration of wealth at the top is not just an effect of the financial crash, but also a serious contributory factor. She also emphasised the role of the trade unions, saying that a 6 million strong movement is still relevant and important – most of the Union movement’s work in helping businesses develop sensible, sustainable strategies that support the interest of management and employees alike goes largely unreported. The need to take a fresh look at corporate governance, especially in terms of shareholder power is also vital. Frances commented that shareholders are not necessarily the best stewards of the long-term interests of companies, instead, the workers are best placed to protect these values.
A lively discussion then followed, involving contributions from an audience of over one hundred. Subjects covered included the unfairness of unpaid internships; debates around the implementation of regional pay; the scope for intervention in the BAE/EADS merger; integrating climate change into corporate governance; and the suggestion that citizenship for non-domiciled residents ought to be contingent on tax contribution.