Corporate Governance and Accountability

Lord Young of Norwood Green Excerpts

Tuesday 5th July 2011 Lords Chamber

[Lord Young of Norwood Green]

My Lords, I also wish to congratulate the noble Lord, Lord Harrison, for introducing this debate on such an important issue.

I declare an interest as vice-chair of the Ethical Trading Initiative, which is a tripartite organisation whereby companies, trade unions and NGOs work together to improve the lives of workers throughout supply chains, which in today’s world are truly global. Companies that sign up to The ETI Base Code, which is based on the ILO conventions, agree that,

“Employment is freely chosen … There is no forced, bonded or involuntary … labour …. Freedom of association and the right to collective bargaining are respected … Working conditions are safe … Child labour shall not be used … Living wages are paid … Working hours are not excessive … No discrimination is practised … Regular employment is provided … No harsh or inhumane treatment is allowed”.

Needless to say, all these companies are on a journey, but there is a real pledge and commitment in their reporting to try to live up to these principles enshrined in the base code.

In this brief contribution I will touch only on the issues of transparency and accountability, which seem to me the key themes that have run through this debate. Let me quote from a speech that Ed Miliband made on responsibility. He said:

“On pay, companies should publish the ratio of the pay of its top earner compared to its average employee. If it can be justified by performance, they should have nothing to fear. We need shareholders to better exercise their responsibilities to scrutinise top pay. And we also need to recognise—as many great companies do—that firms are accountable to their workers as well as their shareholders. Some companies already understand that having an employee on the committee that decides top pay is the right thing to do. We should debate whether this requirement should be extended to all firms. And of course the same should be true in the public sector. So we need responsibility at the top of society, but we also need it at the bottom”.

On the need to avoid the short-termism that has been referred to during this debate, Ed Miliband said:

“It is worth recalling that JP Morgan founded his financial company on the idea that the ratio of pay between the highest and lowest paid employee should be no more than 20 to 1”.

Interestingly, the noble Lord, Lord Patten of Barnes—not to be confused with the noble Lord, Lord Patten, who spoke in this debate—recommended something similar in a contribution he made on Andrew Marr’s breakfast show. The new chair of the BBC Trust suggested that he was interested in the “very good ideas” contained in the Hutton report on public sector pay, which suggest not a ratio but certainly something like this 20 times approach. The Hutton report said that that pay multiples should be published and any increase in the figure should be explained publicly.

I want to end on this question of whether exhortation, as opposed to a bit more regulation, is the right way forward. We can see from this debate that there is still a long way to go on the quality of reporting from many companies. How important is this? We should focus our minds on the fact that, in October 2012, another 9 million people will start to be enrolled into pension schemes, in which their savings clearly will be at an investment risk because they will be members of defined contribution schemes. There is a real importance in ensuring that companies are not short term in their approach and that they genuinely recognise their environmental and social responsibilities.

I look forward to hearing the response of the noble Minister.