Wednesday, 30 November 2016

Reining in corporate greed.

There are clear parallels between the UK's vote  for Brexit and the election of Donald Trump in the US.  In both countries the "left behind" have taken the opportunity to take a swipe at "the establishment" regardless of the consequences.

In the US here is anger that the perceived effects of globalisation have left swathes of the country, the "rust belt" abandoned and with only a minimalist, if that,  welfare safety net. In the UK there is growing anger that, while those at the bottom of the pile have suffered the consequences of government-imposed austerity, the fat cats at the top have not only escaped unscathed but are become richer and richer.

Here are a few figures to illustrate the obscene and still growing gap between the rich and the poor.

  • Unemployment benefit (now ludicrously called "Job Seekers' Allowance) is  £73.10 per week for an adult, which is the equivalent of £3 801 a year, though I you only get it for six months;
  • the government's version of the Living Wage is £7.20 an hour, which for a 35 hour week is £252  or £13,100 per year assuming full-time work rather than zero hours contract.  Members of the House of Lords, who could be said to be on zero hours contracts, though they choose their own hours, receive £300 a day plus expenses;
  • the current median wage is just above £535 per week, or just over £28 000 a year.
  • the average pay of trading bankers at Goldman Sachs is said to be around £400 000 a year, which works out at around £7 500 a week (that's rounding down);
  • the average "compensation" (pay is to crude a word) for the CEOs of the FT100 companies is £5.5m a year, or over £105 000 a week (again rounding down.)  According to some calculations this is 128 times that of their average workers, whereas in 1998 it was only (!) 47 times.
In her opening speech as our prime minister Theresa May spoke of  her "mission to make Britain a country that works for everyone." This was effectively a tacit admission that David Cameron's government had failed to do that.

However, if her Green Paper on Corporate Governance Reform issued yesterday  is anything to go by, there's not going  to be much change. Early indications that Mrs May favoured elected worker representatives  on company boards have been rowed back to mean that  their "voices" might be heard via non-executive directors (sounds a bit like the Guardians ad Litem appointed by the courts to speak for children too young to represent themselves).  And it looks as though she's caved in to indignation from the corporate  lobby that companies might be required to publish the ratio of their  executives' pay to that of their average worker.

If the serious dysfunctionality of our political system is to be healed it is essential that the present system which allows a tiny minority (the one per cent?) to rape and pillage the economy while those at the bottom of the pile are so squeezed that they are unable to participate even marginally in what our society defines as "normal"  be seriously reformed.

In my half century and more in the Liberal/Liberal Democrat party we have proposed various schemes to produce a fairer system which really does "work for everybody."  The most promising, around in the 1960s, was that  company boards should comprise one third shareholders' representatives, one third employees' representatives and one third representatives of the customers and community served.  With such a composition any  "stakeholder"  would need  support from the others in order to achieve an aim.

It is unrealistic to expect a Conservative governments to implement anything so radical but here are a few suggestions for moves in the right direction:

  • company law should be amended so that, rather than the requirement to act solely or mainly in the interest of the shareholders, they should be required to act in the interests of all the stakeholders, defined as appropriate to the individual industry:
  • shares should held for at least six months with financial penalties for selling within three yeas of the purchase;
  • remuneration at all levels should be open and public, the lowest not falling below the living wage as defined by the Living Wage Foundation (not the fake one decided by the government)  and the highest not more than a given multiple above that (I would have thoght x10 to start with, reducing gradually to x5 but that might be a bit optimistic for the times):
  • there should be genuine representation, by election, on the boards, of the various stakeholders, starting with at least two for each interest, and gradually increasing so that no one interest has a majority;
  • the functions of each individual employee should be clearly defined and a fair wage paid for performing it.  There should be no bribes and bonuses, as these inevitably distort performance..
Further suggestions are welcome.

If our democracy is to survive intact I see it as an urgent matter for the Liberal Democrats, preferably in cooperation with Labour and the Greens, to be working on a model with sufficient flexibility to be adapted to different circumstances.  Such would not be a complete solution to the present disaffection, but it would be an essential part.

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