Look at the size of the job, not of the bonus
If business is to thrive in the UK, politicians and the public must respect what it does, writes CBI president Sir Roger Carr
In the face of growing economic difficulty and widespread austerity, the capitalist system is being challenged and its fairness questioned. The rhetoric of politicians and commentators becomes ever more populist and impassioned, corroding trust in the industrial and commercial fabric of our society, on which we all depend.
'Big business is increasingly viewed as bad business, run by the greedy few at the expense of the many. But this negativity overlooks the jobs that are created, the taxes paid and the national wealth generated by businesses, large and small'- Sir Roger Carr
In pursuit of headlines, politicians have rediscovered old terms of abuse — boardroom cronies, fat cattery, asset strippers. But this language ignores the great change that has taken place in boardrooms over the past decade and the positive impact that the UK corporate governance code has had on business behaviour.
Nonetheless, big business is increasingly viewed as bad business, run by the greedy few at the expense of the many. But this negativity overlooks the jobs that are created, the taxes paid and the national wealth generated by businesses, large and small. Similarly the support that business gives to the wider community, schools, apprentices, charities and the arts receives little recognition.
Clearly we must regulate when it is right, legislate when necessary and eliminate malpractice and misbehaviour. But scrutiny without fairness, judgment without balance and action without thought for the unintended consequences must be avoided. Today, especially on the emotive issue of pay, we are at risk of doing just that.
The media storm over Stephen Hester’s bonus has both captured and fuelled the public mood over bankers’ bonuses. Sadly little distinction has been made between those who created the problem at RBS and those recruited to resolve it. The row has ignored the fact that a talented man with many opportunities for personal enrichment has chosen to accept a job that few were capable of doing and even fewer had the appetite to undertake. In the end political pressure forced the surrender of a bonus that an independent board had deemed was deserved.
For those who focus on the size of the bonus rather than the magnitude of the task, Mr Hester’s decision is a victory. For those with a broader perspective, the outcome is more dubious. The chances of enticing others to take on difficult tasks of national importance have undoubtedly been jeopardised. Not by the remuneration he didn’t receive but for the vilification he did. This cannot be in the long-term public interest.
Beyond the banks, pay continues to be at the top of the agenda for the UK business community and the policy review by Vince Cable, the Business Secretary, keeps it in the spotlight.
Proposals eliminating high rewards for mediocre performance and any reward for failure are universally supported. Increased transparency and greater shareholder participation are also welcomed. Robust remuneration committees and rigorous board oversight are all acknowledged as key elements of strong governance.
But shareholder authority, whether exercised by the Government in a state-owned enterprise or by individuals and institutions in a public company, must be carefully judged. The proposal for a binding 75 per cent vote by shareholders on executives’ remuneration has triggered genuine alarm in the business community. Far from strengthening the hand of constructive corporate stewards, it runs the risk of creating “supervisory shareholders”, second-guessing and man-marking executive decisions at every turn.
It is always easier to activate a Machiavellian minority with a quarter of the votes than to energise 75 per cent with a less pressing agenda. The risk of unintended consequences is high. In the case of Mr Hester, the vocal majority has overruled the board’s recommendation. In Dr Cable’s proposal, the 75 per cent threshold holds the prospect of an active minority unseating the board.
The UK remains a good place to do business — favoured by its language, its time zone, the rule of law, a falling corporate tax rate and a globally respected financial policy that provides the bedrock for the low interest rates that help to sustain demand at home and a competitive currency for exports. Although personal taxation is temporarily high, the Government is committed to enterprise, encouraging wealth creation and lightening the regulatory burden.
When the Government creates the climate for growth, business will deliver. But a positive climate is not simply a product of tax levels and laws, it is nurtured with the support and understanding of public opinion.
If corporate Britain is to thrive and attract the most talented people in our society, politicians must make it clear that business is valued and respected for the standards it sets as well as the wealth it creates. In today’s world, more than ever, doing the right thing is also the right thing to do in business.
Sir Roger Carr is president of the CBI and chairman of Centrica