Companies’ Remuneration Reports Bill [HL]

My Lords, the Bill of the noble Lord, Lord Gavron, deeply intrigued me, as we both come from a very similar commercial background. You might say that we were a couple of old-time entrepreneurs. We were both beneficiaries of a buoyant market economy and created substantial commercial and profitable businesses, which, without being immodest, were I believe of high reputation. In due course, we both retired, having created substantial shareholders’ and personal reward. Throughout that time, however, as much as one might be aware that a market economy has flaws, as indeed do all human endeavours, you could talk about and practise ethical values and social responsibilities without being looked upon as a wild idealist or a stranger from another planet. There were many traditional restraints that ensured a high quality of management philosophy enjoined with a prime and meaningful responsibility towards employees, customers and shareholders. There were also at that time, and it cannot be denied, the discernible roots of untrammelled ambitions and unbridled greed. It was perhaps to our discredit that we concentrated more on the shareholder benefits and profitability of the market economy and less upon the smouldering and unlimited ambitions of some in our own markets and particularly in some of the new overseas markets. Noble Lords know the rest of that story, given the explosion, or, rather, the implosion, of the past two years. It was sudden, but it did not happen overnight. We saw it grow like a cancer over many years. For those of us out of the game it was distasteful, but undeniably profitable to the then current players. We were inexcusably innocent; we had perhaps some vague sense that sufficient regulation and values were in place to prevent serious abuse—regulation that for me was never a serious concern in my time, which I flatter myself to think, was because we never went near to breaching any standards. In fact in my own 50-odd years of being in business—when I retired it was a large company with more than 35,000 employees—the only applicable regulation that I can recollect involved a couple of inquiries by the Monopolies Commission, which was concerned with our market share; but we were cleared. Exceptions apart, there was an understanding of growing social responsibility. I turn now to the Bill presented by the noble Lord, Lord Gavron. It contains an interesting concept, albeit I have two reservations. The first is that the information it would produce could be confusing, because, regrettably, different companies cannot be collated on a like-for-like basis. The danger is clear, given the variations in the ratio because of the totally different nature of businesses where they operate from different countries, the different industries in which they trade, where the companies make their profits and, not unreasonably, a different basis of cost and reward. This makes comparison invidious and it therefore has less meaning. After a time, this type of information could easily be brushed aside with well constructed rejection by an articulate chairman. Nevertheless, I do not reject the direction of the Bill. However, the second reason for my reservation is in fact more fundamental. It is quite clear that the wild abuses of the market economy have to be dealt with in a thorough, complete and overall programme. What we must not fall for is tampering with the present construction. We have seen greed and irresponsible management at an unprecedented level—in many cases, in my opinion, well into the level of criminality. We must not approach that history with a sticking plaster any more than we should approach it with a sledgehammer. The market economy is flawed but it is the best system known to man to enable him to exploit his talents and his natural ambition to grow for himself, his family and those who hitch their wagon to his star. The positive side of the market economy needs to be identified and protected. Thus, we need to debate as soon as possible how we are going to run the business community in the years to come. Of course, regulation will play a major part, and no doubt there will be endless debate about the quality and depth of that regulation. As an amusing aside, it occurred to me that many of the excesses of the market could have been stopped if we had given the department of trading standards unlimited fining powers. That might have quickly identified the companies which were selling products not fit for purpose and which caused us all such deep pain. I make that point because it indicates that regulation does exist but it is often contradictory and without sufficient powerful enforcement. Indeed, the best brains often preferred to be where the bucks were, and that was not the regulation side of business. That must be addressed. However, the one area that we have to consider concerns not regulation but the level above regulation. It is about motivation and restoring the ethnical values of management. It is easy to dismiss that argument as ephemeral ambition but, in truth, there are many societies and industries that still value ethical behaviour, which needs to sit alongside a powerfully constructed duty of care by management—an all-embracing, all-inclusive, watertight duty of care; a duty of care to society. I think that the noble Lord, Lord Goodhart, was moving in that direction within his speech. It is an ethical attitude that would frown at the absurdity of the obscene top-slicing of profits by those who, for a short time, have been given unprecedented powers. In this Chamber, I need not camouflage or try to disguise the culprits. In many cases, they were the heads of industry, and none more so than the banking industry. There were companies where getting to the board automatically meant trousering—excuse that horrible expression but it is true—£100 million or more, and sometimes a lot more. If the head of a company is greedy, it feeds the ambitions of greed throughout the body corporate. Great wealth can be created by perfectly honourable means. It can be created by genius or sweat and tears, and we should not begrudge Bill Gates his super-fortune. However, it cannot be created by sharp practice, selling inferior products or exploitation, and it is here that the ethical values have to be sharpened and defined. The time has come for us to debate in depth and discuss in the late hours the methodology of future control, and I hope that ethics will be a constructive part of that debate. I would go further, such as the idea put forward by the noble Lord, Lord Gavron, of exposing disparity of salary. I would introduce an ethical audit, which would not be merely the ticking of boxes. One can be sure that we can be more sophisticated in our demands. Such an audit would make every director, both executive and non-executive, and every decision-maker at every level aware that in our society we must both set ethical standards and accept social responsibilities. The penalty for failure would be uncomfortable, embarrassing and expensive. These ingredients have been woefully lacking—sometimes totally lacking—over the past few years. However, we should be aware that there are those who define ethics as an unquantifiable methodology. Perhaps I may be allowed one further anecdote. Some years ago, I offered a leading London university, with a strong economic speciality, funds to set up a chair in ethics. Alas, this was quickly rejected. The explanation was that there is no role for ethics in economics. Economics, it was explained, is a science. I wonder whether those concerned feel in any way responsible for today’s débâcle. It is not appropriate in this debate to apportion specific blame. After all, we are referring to a flaw in the constitution of man’s motivation. Nevertheless, there is a finger pointing at government for being so subsumed with enthusiasm as to have neglected their natural role of responsibility, which is to be self-critical, to sense the extremes that can invade and destroy society and to sense when they have failed to take action rather than encourage. So, when we get round to the new plan A, we must study all the permutations and all the possibilities. If that means that the market economy is not a free ride for greed, nor a substitute for unlimited exploitation, we will have started to construct a far better model.