25th Anniversary of the World Wide Web
Lord Mitchell Excerpts(10 years, 10 months ago)
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Lord Mitchell (Lab)
My Lords, in thanking the noble Baroness, Lady Lane-Fox, for her magnificent speech, I must say that she and I belong to a very exclusive club in your Lordships’ House: we are both IT entrepreneurs, although there are a few others. I pay every tribute to all she has done. For the help she has given in the skills sector through Go ON and for the help she has given me in my role in Labour Digital, I thank her again.
In 1967 at the age of 24, I joined what was then called the data processing industry. I was a systems engineer, and the first central processor I ever worked on was an IBM 360/30. It had 64,000 bits of memory and it cost £65,000 to buy. The CPU was a huge box with dials and lights on it. It was kept in a dedicated air-conditioned environment and it must have weighed a ton. Input was via punched cards. Today, I have an iPhone 5 in my pocket, which has a million times more memory and costs one-thousandth of the price. It has no air conditioning, no punched cards and input is via touch or voice. This is Moore’s law in action, with processing speeds doubling every 18 months.
The world wide web needed not only massive leaps in computing speed but also massive leaps in communication ability. We all remember fax machines that connected at 9,600 bits per second—how fast they seemed then. My network at home has a speed of 100 megabytes per second—10,000 times as fast. We are witnesses to a revolution in digital that is every bit as dramatic as the Industrial Revolution was 200 years ago. Just as James Watt showed that steam could drive a machine and replace muscle, so Tim Berners-Lee’s invention of the world wide web has replaced the way we access data, communicate and organise our lives. As coal, oil, petrol and electricity give us energy to power our lives, so digital is now giving us mass access to swathes of information.
I would like to take a look at retail. In the UK, more than 3 million people work in this sector. If you compare the number of employees required for each £1,000 sold online against the numbers required for traditional retailing, the ratio is 1:3, so any move to online retailing is bound to cause significant reductions in employment. Last year, Jessops, HMV and Blockbuster all went bust due to their own technology myopia. There are many more to come. In the past week we have seen that, over the holidays, the quantity of retail sales completed online reached 20%—a massive increase. The retailers who are succeeding are those who embraced online many years ago. However, Morrisons was never interested in online retailing, and we have seen what is happening to that company.
I have cited retail, but I could have mentioned schools, universities, medicine or even government itself. All these sectors are changing at a very rapid pace. As other noble Lords have mentioned, the next big thing will be wearable technology. What we see before us is Joseph Schumpeter’s concept of “creative destruction” on steroids. The digital revolution is sweeping all before it. Those who embrace it will prosper, and I suspect that those who do not will mostly perish.
International Women’s Day
Lord Mitchell Excerpts(11 years, 8 months ago)
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Lord Mitchell
My Lords, I thank the Minister for securing this debate. I also extend my congratulations to the right reverend Prelate the Bishop of Coventry on his excellent maiden speech, which I watched on the screen upstairs. I must confess that I am still reeling from Question Time and the intervention of the noble Lord, Lord Flight. I think that he may well be in the running for the title of dinosaur of the year.
My credentials are as follows. In the mid-1980s I was chairman of a public company in the tech sector. We were a fully listed company and we had a woman on our board, who was there because she was outstanding. She was in her late 30s and had just had her first baby. She brought her baby to a board meeting and breastfed it during the meeting. We reckon that we were the first company where that had occurred.
Today I wish to talk about a very special organisation called Women for Women International, on the main board of which my wife sits. It was set up in 1993 by a woman called Zainab Salbi, who was an Iraqi living in Baghdad and whose father was Saddam Hussein’s pilot. I think that it got too hot for everyone at that time and her parents moved to the United States. During the conflict in Bosnia she was smuggled into that country, went to Sarajevo and saw what was happening there. She became very interested in the whole concept of women in post-conflict zones, as Bosnia eventually became.
Today Women for Women International is located in both Washington and London and has helped 350,000 women, which I shall discuss in a moment. It operates in Bosnia, Kosovo, Iraq, Afghanistan, Democratic Republic of Congo, Rwanda, South Sudan and Nigeria—all pretty tough countries. The ethos of this organisation is that stronger women build stronger nations and that, through access to know-how and resources, socially excluded women can change their countries and build peaceful and stable communities. The organisation creates awareness and behavioural change and organises year-long curriculums in which women are taught economic, social and civic rights, health awareness, decision-making, negotiating civic participation, business and vocational skills, how to access income-generating activities and, most importantly, economic self-sufficiency. A KPMG study of this body’s activities in the DRC and Rwanda states that Women for Women International’s programme is having a significant economic ripple effect, as other women in the community are learning from Women for Women graduates who are now viewed as role models in the community.
I want to say a little about my experiences. Three years ago I went to Bosnia for the first time and saw horrific things. I went to Srebrenica, of course. I am Jewish by background, and when you go to those memorials and see the names of the people who died, comprising family name after family name, it is very reminiscent of some of the memorials in eastern Europe to the dead of World War 2. Bosnia was the country that gave us such charming expressions as “ethnic cleansing” and “rape as a weapon of war”.
The Serbs took part in a particularly gruesome activity. In the Muslim community, a dead body has to be buried whole. When Muslim men were killed, the Serbs mixed up their bones so that it would be impossible to find whole bodies. However, since then and with the advent of DNA, the slow process of matching these bones has begun so that bodies can be buried whole. I saw mothers and wives eventually finding some form of closure following the deaths of their loved ones. I know that this is not a political debate but I find it impossible to accept that Serbia could ever become a member of the EU, given that there is so much for which it has not atoned in that awful situation. However, I shall leave that alone. We have a house in Italy that is 200 miles away from Bosnia as the crow flies. However, these activities have occurred in our lifetime and women have suffered as a result.
I have also visited Kosovo and Rwanda. The latter has experienced terrible genocide. Nevertheless, it is one of the happiest countries that I have ever been to. It is an amazing place. In 1945 the world said “never again”, but the fact is that it never stops. However, there is some good news. Women for Women International staff are teaching women in Bosnia to carry out important jobs. I have visited those activities. I went to a chicken farm, a mushroom farm and a tomato farm and saw women who produced embroidery and supplied it to a leading brand in the United States. In Kosovo we met a female beekeeper who had started with two hives, obtained with a microloan. She grew the business to 40 hives and was generating €5,000 a year for her family and teaching more women how to keep bees and make honey.
In Rwanda, which, as I say, is one of the happiest places I have even been to, a group of white women and I weeded and harvested in the fields under the noonday sun with machetes in our hands, although it was horrible to hold a machete in that country. Thank God, after 20 minutes they called it a day. We spoke to the women in that place and one of them asked me the question that throughout my life I have found the hardest to answer—namely, how many litres of milk does my cow provide? That was a tough question to answer.
I end with a few statistics that I think are terribly impressive. The average daily income of women trebles when women attend courses run by Women for Women International. The same is true of savings: 27% of the women are now saving. Knowledge of good nutrition has gone up from 20% to 85%. Knowledge of civil rights has gone up from 16% to 90%, and participating in social work has gone up similarly from 36% to 80%. The two most important statistics reveal that participating in community activities has gone up to 70% and voting up to 75%. I know that my time is up. I would just like to say that this is an amazing organisation, and I ask noble Lords to look it up on the website.
Enterprise and Regulatory Reform Bill
Lord Mitchell Excerpts(11 years, 9 months ago)
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Lord Mitchell
“(2B) The regulations must require the inclusion of information regarding the ten highest paid and ten lowest paid employees in the company outside of the board and executive committee.”
Lord Mitchell
My Lords, in addressing this section of the Bill, I should like to say a few words. I am very conscious of the fact that this is most definitely not a Second Reading debate, but I want to give a little perspective before I get to the main issue.
The amendment deals with directors’ remuneration, a subject which has had a lot of intense coverage in the media. Before we get to the nuts and bolts of the various amendments to which I have added my name, it might be useful if I set out some of the background to our thinking on this issue. I should say at the outset that we are very encouraged that shareholders, particularly pension funds and investment funds, are taking a much more proactive position on this issue. I know it is stating the blindingly obvious but it is the shareholders who own the company and it is they who risk their investment when they buy into a company, yet for too long they have been ignored.
I have to recount a ghastly story about Goldman Sachs that I read some time ago before the financial crash. The story goes that senior management in that company in the United States would look at their profits, decide how much reported profit they needed to keep Wall Street and the shareholders happy, and then divvy up the balance between themselves. I do not know whether that story is true but I am sure that some people take that approach: that is, senior executives act as if they own the company and believe that it is up to them to decide how the pie is sliced, but that is not the way things should be done. To its credit, this month Goldman Sachs responded to the outcry when it agreed not to delay bonus payments in this country in order to gain from the lowering of higher-rate income tax in April. I think that was a good result. Sadly, not all companies have followed the example set by Goldman Sachs. For example, I am told that Tullett Prebon intends to delay bonuses until April. It is on this company’s board that the BIS Minister, Michael Fallon, used to sit. That is not a good example of best practice.
As some noble Lords will know, my background is in IT. For all the faults of that industry, I think it is fair to say that instant gratification by way of monster remuneration is not the norm. By and large, it is about share ownership and share options. The late Steve Jobs was famously known for receiving an annual salary of $1 a year. We have spoken about Amazon today but the owner and founder of that company, Jeff Bezos, also receives a basic salary of less than $100,000—that is, less than a Member of Parliament. I know that in those companies, both those entrepreneurs were already wealthy men but for them it was never about raiding the kitty; it was about capital growth and the long term. Does that not send a positive message to their employees? Their priority is the customer, the product and the service. Get that right and the rest will follow.
It is with much dismay that I see the very opposite in many other sectors of the business spectrum. This very week, we read that RBS intends to divvy up £250 million by way of bonuses, plus a likely fine of £500 million to the US authorities—this is a separate issue—for the bank’s manipulation of the LIBOR market. This bank, where people have been lucky to avoid criminal prosecution for fixing markets, is one that we own and what is going on is simply wrong. This very day, we read about the very same actions being taken by Barclays, a bank whose record is less than perfect. These executives grab all they can when their company’s trading record is poor and where the shareholder value has remained at rock bottom. Being paid to fail does not sound right to me. In even more disturbing news this morning, the FSA has come out and criticised the mis-selling of complex interest swaps, which particularly hit SMEs that were, in many cases, ill equipped to evaluate their risk and were relying on the good name of the banks that sold them the product. I am not saying that what the FSA has done is disturbing; what it has done is really good, but the practice that was going on is disturbing.
When they come back, what do these well paid executives say? “It is a global employment market. If we don’t get top dollar, we will go somewhere else or to some company that will pay us”. You hear that all the time. The FT hints that RBS executives are threatening it. You can use any word you like to describe this kind of behaviour; my word is blackmail. It is what Premier League footballers do. My advice to anyone who is faced with this gun to their temple is to call their bluff. My experience in business is that no one is indispensable. Just below the great man—and now, increasingly, the great woman—you can bet your boots that there is someone who can step up to the plate.
My party wants fairness and balance. It is worth noting that if the minimum wage had been increased to reflect the average remuneration of FTSE 100 CEOs, the minimum wage would now be at £19 per hour. Instead we have this growing disparity, especially in London where so many leading companies are based and where, in 2011 alone, the top percentile received a 16.5% greater increase than the bottom percentile. Put simply, too many are being left behind and bringing this imbalance back into balance is exactly what my party’s one-nation philosophy is all about. That is the background but let me repeat: we have no problem with high pay. However, we have a problem when this pay is set by a cohort of good old boys who look after each other’s interests. The solution is to make pay transparent and to ensure that remuneration policies are set via the board, in consultation with independent experts and with the shareholders’ explicit approval.
The amendment which I am addressing first, Amendment 58BA, deals with the top 10 and bottom 10 earners in a company. This amendment aims for greater transparency on pay across the whole of the company, so that shareholders have more information when they come to make decisions on pay. It requires that the salaries of the top 10 highest earners in a company, outside the boardroom, are disclosed in a similar fashion. No doubt companies would choose to do this in an anonymous form, with lists of pay bands and the numbers of employees who fall into each band. This would be entirely acceptable and is good practice. Indeed, I have prepared such lists for companies that I have been involved in, where I have been chairman of a public company. It is also the practice in the United States. In some sectors, particularly the banking sector, very high earners exist outside the boardroom, which is why shareholders need these figures for context.
Viscount Younger of Leckie
My Lords, noble Lords are very familiar with the arguments in favour of action on directors’ remuneration in quoted companies. In my opening remarks, I will be echoing many of the sentiments expressed by the noble Lord, Lord Mitchell, and particularly picking up on the transparency aspect, as expressed by the noble Baroness, Lady Turner.
Over the past decade, directors’ pay packages have risen on average by 13% per year, while the value of many of the companies they run has remained broadly static and workers’ wages have risen at a much slower rate. Business and investors recognise that this disconnect between pay and performance is damaging and not in the long-term interests of the economy. As Sir Roger Carr, president of the CBI has said:
“Now is the time to be more transparent, more responsible and more accountable”.
It is not government’s role to micromanage company pay, but there are actions that we can take to address what is a clear market failure.
Eighteen months ago, the Government initiated a broad, national debate on this issue. This has encouraged shareholders to become more engaged as owners of companies during the so-called shareholder spring. In 2012, several firms saw their remuneration reports voted down, including big companies such as Aviva and WPP. We have also seen many companies taking the initiative and engaging constructively in response. This is an important step for encouraging more responsible paysetting.
The Government’s reforms will build on this, and promote better engagement between companies and shareholders. By giving shareholders clearer information about what directors are paid and binding votes on pay policy, shareholders will be better equipped to hold companies to account. Business and shareholders agree that this comprehensive package of reforms strikes the right balance. It will promote a stronger link between directors’ pay and company performance but avoid placing unnecessary or inappropriate burdens on companies. The head of the Association of British Insurers has said that these proposals,
“are practical, workable and should help tackle excessive executive pay”.
The amendment requires that companies report on high and low pay outside the board. The issue of high pay below board level is most prevalent in the financial services industry because poorly designed remuneration structures can incentivise excessive risk-taking—a point alluded to by the noble Lord, Lord Mitchell. The Government are committed to improving remuneration disclosure in banks and achieved progress on disclosure below board level as part of Project Merlin. At the same time, Europe has proposed bringing in its own disclosure rules. We await the outcome of these negotiations before deciding on how to proceed with any domestic proposals for disclosure below board level at banks. The Government will argue strongly for the right outcome and remain committed to ensuring that the UK has a transparent and comprehensive remuneration disclosure regime for all companies, including the financial services sector.
However, we do not believe that high pay below board level is a major issue in other sectors. Through our consultations with investors, we learned that there is no demand for such a disclosure, which, if adopted, would place an unnecessary regulatory burden on companies.
Regarding the pay of employees more generally and how directors’ pay compares to that of lower-paid workers, the Government recognise that this is an issue of concern for shareholders, employees and the public in general. We want remuneration committees to consider the broader context when setting top pay. That is why, under government proposals, companies will have to say more about how they have taken into account pay of employees at all levels, and publish the percentage increase in pay of the chief executive officer compared to that of the workforce.
Last year, we published a draft of the regulations that will implement these proposals. These regulations will determine the content of remuneration reports in future. We invited people to comment on the draft regulations and a copy is available in the House Library. Noble Lords will have the opportunity to debate this matter thoroughly later this year when these regulations are brought forward.
Amendment 58BB would mandate that regulations prescribing the content of directors’ remuneration reports must require companies to disclose information about fees paid to remuneration and recruitment consultants in respect of directors’ remuneration. Noble Lords will be aware that the Secretary of State already has the power to require companies to disclose this type of information in the directors’ remuneration report and that we have published draft regulations that would give effect to this. Under these proposals, companies would be required to explain how consultants have been appointed, what services they have provided and how much they have been paid. By way of an update for the noble Lord, Lord Mitchell, we invited comments on these draft regulations and are currently considering the responses.
The noble Lord, Lord Mitchell, rightly drew attention to pay in banks, which I alluded to in my remarks. However, it is worth re-emphasising that high pay outside the boardroom is most prevalent in financial services, and we want to see greater scrutiny of how senior executives in large banks are incentivised because their behaviour can have a material impact on a firm’s risk profile. That is why we have committed to extending pay disclosure in large banks to highly paid non-board executives. This would mean that the UK had the most transparent bank pay of any major financial centre, but we do not propose to apply this in other sectors, as mentioned earlier, where it is less relevant. We consulted on this and found that there was no demand from investors for this extra information. Indeed, it would be an unnecessary extra reporting burden on companies.
I thank the noble Lord for raising this issue, but I suggest that the amendment is unnecessary, given that the Government already have the power to do this and have proposed considerable action in this area. I therefore ask the noble Lord to withdraw the amendment.
Lord Mitchell
I thank the Minister for that reply. I think we are not too far away in our philosophy and in what we would like to do in this section of the Bill. What we are suggesting would perhaps give the Bill a little more bite than it has at the moment. It is something we need to think about. My instinct is that we need to pursue these amendments.
I shall say one thing in particular. I do not understand why non-financial companies are not part of this. If I were a shareholder, I would like to know this information, even if it were—to name one company—WPP, which is not in financial services. There are many companies out there that pay pretty massive salaries, and I do not understand why they should be excluded from this. The Minister said that consultation with the investment community showed otherwise, but for all of us who invest in companies, this is key information that we should have. I hope the Minister takes into account what I have said. I beg leave to withdraw the amendment.
Lord Mitchell
Lord Mitchell
My Lords, this group of amendments is about accountability. We will be going over some of the area we have discussed before, but some of the points need stressing. Again, the issue is about putting power back into the hands of the shareholders.
Amendment 58BD, where we intend to change the word “ordinary” to the word “special”, talks about the type of resolution that would be necessary to get through any changes in the principle. We feel that a special resolution, which would be 75% of the shareholders, gives it a greater importance as far as the company is concerned and makes any changes to the principles of remuneration that much harder to make.
The current arrangements for backward-looking votes have given some power to shareholders, but have not sufficiently empowered them. While we welcome the changes, we feel that more could be done. In 2012, at the height of what became known, as the Minister said, as the shareholder spring, there were significant votes against directors’ pay, such as those at Aviva, Barclays and William Hill. The most memorable was the voting down of a 30% pay increase for Sir Martin Sorrell at WPP.
However, from 2011 to 2012, there was an increase in executive pay to the tune of 12%. By comparison, the rate at which pay increased for everyone else averaged 2.8%. Only 12% of the country received a pay increase of more than 4%. Needless to say, there was no rise in share price to equate with that 12% jump in wages, and nor would one be expected. In the past 10 years, FTSE 100 executive pay increased by 300%, while the FTSE 100 index has increased by 48% and, more devastatingly, fallen by 8.1% in the past five years.
It is far more difficult for shareholders to organise today than it would have been in the past, mainly because ownership is so global. Indeed the Kay review into the effect of UK equity markets on the competitiveness of UK business pointed out that the increase in foreign ownership has made it much more difficult for a disparate group of shareholders to organise and collaborate. In 1981, the percentage of shares in UK-listed companies held outside the UK was 3.6%. Today the figure is 41.5%—a dramatic change. Shareholding is also often a much more short-term affair than in the past. In 1998, the average holding in US and UK banks was around three years. Ten years later it had reduced to three months. It is probably even less today.
With that in mind, shareholder protest should be reconsidered. If 40% of shareholders in a company combine to oppose a remuneration report, it is a hugely significant development showing a deep level of dissatisfaction with company policy. Indeed the Government’s consultation in March appeared to acknowledge precisely this problem. Under the proposed rules, however, it would be possible for a company to ignore the report. The amendment would rectify that.
I want to address the question of an annual vote, which, of all the issues that I am addressing, we feel very strongly about. Our amendment is also about empowering shareholders. It proposes an annual binding vote for shareholders on a company’s remuneration policy, as opposed to a three-yearly binding vote. Having such a vote will ensure that executive pay is a matter that directors have to engage with regularly and will ensure that the issues around it are kept in mind. It would not be a difficult requirement to comply with, and I do not imagine that businesses will find much difficulty in doing so. This is because there are already many reporting requirements on an annual basis. Indeed the triennial approach, while a well thought-out idea, probably loses sight of that fact. The idea of a binding annual vote on pay has broad support. Indeed, it is again the case that the Government’s consultation in March seemed to suggest that it was their preferred approach.
In this case, there was every indication that Vince Cable and the Government initially supported an annual vote, but then performed a U-turn once it became apparent that pressure had been applied to them by large firms—yet another example of this Government talking big and acting small. A Financial Times editorial piece on the subject said of directors:
“Annual votes would at least put them firmly on the spot. Mr Cable’s triennial polls, however well-meaning and thoughtful, may not”.
This is not to be confused with my party advocating short-termism. We believe that in many cases pay has been thought about with too short-term an approach. The triennial vote actually reflects that to a certain extent, as for many companies, three-year share options are thought of as long-term. However, that is for companies themselves to think about. What the annual binding vote would do is ensure that whatever remuneration policy is chosen, shareholders have the power to hold it to account. I beg to move.
Lord Razzall
My Lords, this is clearly a serious issue and the noble Lord, Lord Mitchell, is right to use this opportunity to get the issue debated. I do not wish to delay the Committee for too long on this point, unlike some of my colleagues, but the point ought to be made that while the noble Lord is of course right that the Secretary of State’s initial position was to look at annual binding votes, one of the objectives of consultation on these issues is to try to arrive at a consensus. It looks as though a consensus about the triennial proposal has been found that gets both the TUC and the CBI on side. That is a significant achievement, given that this is a tricky issue. The initial position could have been significant hostility from one side to the other, whatever the Secretary of State’s recommendation had been. It should be noted that the compromise was well negotiated between the two positions. It is not often that the trade union movement and the CBI can be got to agree on something so complex.
Viscount Younger of Leckie
My Lords, Amendments 58BD, 58BF and 58BG would make the vote on remuneration policy a special resolution, requiring companies to secure the support of 75% of shareholders to pass. The level of support required for remuneration resolutions is a matter that the Government have consulted on extensively. The vast majority of investors agree that the vote on pay policy should remain an ordinary resolution. They would be concerned if a minority of shareholders could overturn the views of a majority. In cases where voting turnout is low, it would take only a small number of activist investors to reject the pay policy.
Investors have welcomed the Government’s decision to keep this as an ordinary resolution. They have shown this year that a majority of shareholders are often willing to vote against egregious pay policies. In 2012, we saw a succession of companies lose the vote on pay policy with at least 50% opposition from shareholders, as the noble Lord, Lord Mitchell, said. Special resolutions should be reserved for rare issues that have a major impact on shareholder rights or company value, such as recapitalisation or changing the articles of the company.
However, the Government agree that companies should have to take action when a large minority of shareholders reject a remuneration resolution, even if legally it has been passed. Therefore, the Government welcome the Financial Reporting Council’s commitment to look at whether companies should formally respond when a significant number of shareholders vote against a pay resolution and to consult on this being in the Corporate Governance Code.
Amendment 58BE would remove the requirement for companies to put their remuneration policy to a shareholder resolution at least every three years—triennially—and instead require that this is done annually. We considered that carefully when consulting with investors and companies. They welcome the option of a three-year pay policy, which encourages companies to plan for the long term and discourages them from making annual tweaks to pay packages. Investors agree that this will help to put a brake on annual pay ratcheting.
Major investors and investor bodies, including the Association of British Insurers, have backed this approach. The ABI has said that it will,
“help the task of keeping executive pay proportionate and aligned to corporate strategy”.
Of course, companies can choose to have an annual vote on pay policy and will be required to if they make any change to it. However, if the policy remains totally unchanged, it is an unnecessary burden on both companies and shareholders to require a vote on it.
We have, however, built in a safety net. Shareholders will continue to have an annual advisory vote on how the pay policy is being implemented. If they are not satisfied, they can oppose the advisory vote and this will trigger a requirement to have a binding vote on the pay policy at the next AGM. Shareholders also have the existing right to force a resolution at an EGM. That means that shareholders could force an annual binding vote on remuneration policy, should they wish to.
The noble Lord, Lord Mitchell, asked whether the high-profile votes against pay last year were a flash in the pan. As he said, last year we saw several such votes against high pay—he cited some examples—which were a step in the right direction. We are pleased that shareholders and businesses are increasingly working together to sort out pay issues, but it will take more than one year to do so. The government reforms will come into force in October this year and will give shareholders more power to push for change. Looking further ahead at least 18 months, if we see less public anger over pay because companies have sensible pay packages, we will have gone some way towards succeeding.
The noble Lord, Lord Mitchell, echoing remarks made by my noble friend Lord Razzall, raised the recent Kay review, and I am grateful to noble Lords for their welcome of that review on how to encourage a more long-term view in our equity markets. This is one of the reasons why, after consultation, we considered that a three-year vote best enabled us to focus shareholders and directors on the long-term value of the company.
Given the wide support for the approach that the Government have taken on this issue, I ask the noble Lord to withdraw his amendment.
Lord Mitchell
My Lords, I thank the Minister for his comments. We are perhaps a little further away from each other than we were on the previous amendments. As the noble Lord, Lord Razzall, said, it is some event when the TUC and the CBI come together on such a key issue, but we still feel that the annual side of this is an important issue.
I shall deal with the special resolution and the 75%. It is part of what we are saying about the need for this issue to be treated as important. In the next round, we would probably want to keep it as it is, but I will think about it. As for the annual side, and the request that it stays on a triennial basis, every single year at annual general meetings a series of issues go through, such as the approval of auditors and accounts. I do not see any reason at all why there should not be an approval of directors’ remuneration principle and package; it should slot in: one; two; three. I am sure that is the correct way for it to be. It does not matter what companies want to do. It is what we should be telling companies to do, so that those who invest and are stakeholders in those companies can really understand what has been going on in the past 12 months.
Having made those points, I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, Amendments 58BH, 58BJ and 58BK relate to the information that must be published by a company when a person ceases to be a director. They seek to clarify the information that must be disclosed and ensure complete transparency. Whenever a person ceases to be a director, shareholders want to know the details of their exit package. At present they may have to wait several months before they find this out. We believe that requiring companies to publish this information as soon as possible after a director departs will help to put pressure on companies to moderate such payments. Clause 72 introduces this requirement and requires the company to publish on its website details of payments for loss of office. However, because of the complexity of directors’ pay, some payments made after loss of office will technically be classed as remuneration payments rather than loss of office payments, so, legally, companies would not have to include details of them. Such payments can represent a substantial part of an individual’s exit package and so should form part of the disclosure on a company’s website. These amendments address this gap, bringing within scope,
“particulars of any remuneration payment … made or to be made to the person after ceasing to be a director, including its amount and how it was calculated”.
This will close a loophole which could otherwise have been exploited by companies attempting to evade the spirit of the legislation by not making full disclosures on exit payments. I beg to move.
Lord Mitchell
My Lords, we welcome this amendment. It is in the spirit of giving shareholders more information. We are very happy to support it.
Viscount Younger of Leckie
I am pleased to have support for these minor and technical amendments.
Lord Razzall
My Lords, I have considerable sympathy with the amendment proposed by the noble Lord, Lord Stevenson, and the noble Baroness, Lady Hayter. These issues are always extremely tricky in that it is a matter of getting the balance right between the wish of companies or individuals to carry on trading following an insolvency action and that of creditors to protect their interests. There is a slightly wider issue of pre-pack administrations and sale of businesses where the major losers are the unsecured creditors. That is something that your Lordships have looked at from time to time to see whether any change needs to take place. This is a relatively small amendment to marginally shift the balance in relation to organisations which, although insolvent in one form or another, are carrying on trading. We have had a lot of evidence—obviously on the Labour side as well as on our side—that there are quite significant occasions when the suppliers of these services, rather than cutting off the service, say that they will carry on the service but charge a significant extra amount. That seems not to be conducive and, in this case, shifts the balance far too far away from the creditors’ interests. Therefore, I think that this amendment is very appropriate and the Government should consider it seriously.
Lord Mitchell
My Lords, I had not intended to talk about what I am talking about now, but it is pertinent, particularly as the noble Lord, Lord Razzall, mentioned pre-pack administration. I would like to say a little more about that.
Some pretty awful stuff is going on out there. Pre-pack administration is a situation in which a company is in trouble, particularly with its creditors, and is just about hanging on, when at the very same time some influential shareholders get together with a friendly administrator and say that they will put the company into administration. They suggest that the moment that it is put into administration there will be just a short period of time in which to sell it, then they will come in with company mark 2, which will buy the assets and business from the administrator and start up again, often with a very similar name. The effect of doing that is that the small creditors, which is the area that I care about because they are generally SMEs, and the small shareholders, get absolutely stuffed, because the company ceases to exist—and it then in its revised form continues with a different name and some of the same shareholders. They have an agreement with their banker. They have dumped all the toxic stuff into the river and moved on and started the company again. This does goes on; I have seen lots of examples of it happening. In fact, I am a minority shareholder in a company and there was a time when the majority shareholder was threatening to put the company into pre-pack, which would have meant me losing my shareholding. This was several years ago but I have experienced the threat of it. In effect, it never happened but it is one of the weapons that a company can use to dump shareholders and creditors. I put this down as something that I might come back to. I am not expecting the Minister necessarily to come back on any key points but I just want to make that point.
Unemployment: Young People
Lord Mitchell Excerpts(11 years, 10 months ago)
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Lord Mitchell
My Lords, I, too, will start by thanking the noble Lord, Lord Chadlington, for securing this debate. Youth unemployment is an incredibly important issue, and it is to his great credit that he raises it today and has spoken so knowledgeably and passionately on this subject. I will also pay tribute to the work he has done in equipping school leavers for the jobs market.
I would like to set out my own background in this area because it is pertinent to what I have to say. I have been involved in information technology for most of my adult life. I started my business career in an environment where data were stored on punch cards and massive mainframe computers were water-cooled. Today, this iPad that I am reading from at this very moment has many thousand times the power and internal storage memory of those massive machines—and I can fit it into my briefcase.
In 2000, when I was first introduced into your Lordships’ House, I founded a charity called the e-Learning Foundation. Its remit was to ensure that every school child in this country had their very own computing device which they could use at school as well as at home. We thought then that the computer should be as ubiquitous as the pencil and we recognised that, in the 21st century, IT skills were critical. Most of all, we were concerned about the problems associated with the digital divide, which the noble Lord, Lord Ramsbotham, has just mentioned, that occurs when the population is segmented into those who are IT literate and those who are not. The devices we first used were laptops and even desktops. They were heavy, expensive and, in the case of the desktop, clearly not mobile. Today we have a new world. Again, the iPad in front of me demonstrates how it has all changed and how the technology today fulfils the criteria we were seeking: powerful, small and mobile. When I read that over the Christmas period, iPads and other tablets were the hottest consumer presents, it comforts me that the objectives we set at the e-Learning Foundation are now close to being met. In a few years’ time, no young person will be without a tablet, much the same as very few are without their smartphones.
When we come to youth unemployment, it seems that there are two sides to the picture. First, as the noble Lord, Lord Chadlington, has already stated, it is an extremely discouraging situation. But the other side is slightly more reassuring. A whole generation has grown up with the skills needed in the 21st century. What we need now is to channel those skills. I contend that with better recruiting methods, the young unemployed can be matched with dynamic companies, particularly smaller ones.
I turn, first, to the challenge. Currently, almost 1 million young people are unemployed in the UK, with 430,000 claiming jobseeker’s allowance. Of particular concern is the number of young people who are finding themselves in the very difficult position of being unemployed for a long period of time. Almost a quarter of a million are currently among the long-term unemployed, which is at its highest level since 1994. Given that long-term unemployment for the whole population stands at 1.3 million, we need to do everything we can to ensure that our unemployed young do not find themselves out of work for extended periods or even for the rest of their lives. The demise of the Future Jobs Fund is to be regretted, especially since the DWP impact analysis showed that for each person it contributed £8,000 to the economy. The Work Programme, which was designed by this Government to replace the Future Jobs Fund, appears to have been rather badly named because it is not a programme and it does not create very much work. Of the 785,000 people who have been referred to the programme, only 18,000 have achieved what could be a called a job outcome. Essentially, in its first 12 months, the Work Programme has placed only two in every 100 participants into work. That is not very impressive. I shall put it more strongly. The Government have a habit of announcing shiny new policies, each of which grabs a quick headline, but because they have been ill thought through they wither on their implementation. This is just another example.
I must emphasise to your Lordships that, for my party, youth unemployment is very high up on the agenda. My right honourable friend Ed Miliband has said that the real jobs guarantee would give six months of paid work to anyone aged under 25 who has been out of work for more than a year, and that it would be paid for by a tax on bank employment.
Social media provide opportunities for us to help find jobs for more young people. In today’s world, young people no longer get their news from print, but from their screens. There are downsides to this, of course, but there are also benefits. Equipped with digital skills, young people are in a better position to help companies, many of which are falling behind in their adoption of digital technology. One programme started last November in the United States catches the eye. It is called the Social Jobs Partnership, a collaboration between Facebook, the US Department of Labor and the National Association of Colleges and Employers. It uses five of the biggest job-listing sites in the United States to gain access to 1.7 million vacancies on Facebook and builds upon research from the National Association of Colleges and Employers which shows that companies want to use social media better to contact potential recruits. Some 87% of those surveyed suggested that candidates “like” a Facebook page of companies that they are interested in.
I listened with interest to what the noble Lord, Lord Chadlington, said about his work on programmes to give school leavers the skills they need to go out and find a job. One area that needs to be addressed is personal presentation and interview technique. I know it seems old-fashioned, but too many young people do not have a clue how to present themselves. Even in the digital age, this matters. Maybe peer-to-peer contact would help. I want to address some of this as I proceed.
My mantra on job applications is that you never have a second chance to make a first impression: so make a first impression. I know it seems blindingly obvious, but those looking for a job need to know that they must turn up on time—indeed, before time—for an interview. To be five minutes late and flustered is unacceptable. They should look attentive and dress appropriately. Young people need social skills that may not come easily to them: how to present themselves and how to speak on the telephone. Most of all, they need to do their homework. In a world where information is so easy to come by, why is it that some interviewees do not research the organisation they are hoping to join? In my view, it is because the education system has failed them. Schools and universities need to do more in instructing young people how to prepare for job-seeking and interview technique.
Young people also need to be aware of the perils of the digital world. Digital presence is very important, from the wording used in an e-mail to what they put on their Facebook page. Employers look on Facebook and it is not helpful if silly videos, or worse, are on their sites. CVs need to be better. I am associated with a wonderful organisation called the Amos Bursary, set up by my noble friend Lady Amos and her sister. This charity helps young black men find their way to full-time employment. For some of these young men, university can be very daunting, and for one reason or another they lack personal networks. Mentors can help.
Social networking sites offer young people the opportunity to link in with the outside world. I believe that much more can be done. LinkedIn is a good example. Many of us use it and it seems to be geared to the professional classes, but why should it be just them? It is free, so why is it not used by more young unemployed people?
In my family two young people have set up companies, by coincidence, in the graduate recruitment sector. I need to declare this interest. First, my own nephew, Keren Mitchell, is a founder of the JobCrowd, and my son, Felix Mitchell, is a founder of Instant Impact. Both are relevant to these points. Sometimes family gatherings are interesting.
The JobCrowd is the graduate recruitment equivalent of TripAdvisor, which provides anonymous references for hotels and restaurants. In this case, the site enables job applicants to get inside information from their peers who already have jobs. They answer questions such as, “What is it really like?” and, “Can I believe what I’m being told?” Instant Impact places graduates with small and medium-sized companies—in particular, paid interns. I want to say a little about this before I finish.
Competition for jobs is very high and every applicant is doing his or her best to make their CVs seem as interesting as possible. Internships really matter and the sad fact is that many young people believe that it is necessary to take unpaid positions just to show that they have a track record. Students doing holiday jobs are one thing, but people having to work for nothing is simply wrong. Many of the worst offenders are in the NGO or charitable sector. To be honest, charities that I have personally been involved in have also done this, so I am not without guilt. Companies do it, particularly those in media and marketing, where young people are willing to sacrifice their pay just for the glamour. It also exists here, in this Westminster village. How many MPs and members of your Lordship’s House have unpaid young people working for them just so that they can put this placing on their CVs? It is wrong; it must change, and change quickly; and we should set the example.
This digital age is presenting new opportunities in so many ways, but the most successful of all has been social networking. If we can use this technology to help solve the iniquity of youth unemployment, we will have achieved a lot.
Enterprise and Regulatory Reform Bill
Lord Mitchell Excerpts(11 years, 11 months ago)
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Lord Mitchell
“11A (1) The CMA shall have a unit dedicated to matters affecting relating to competition issues amongst affecting small and medium-sized enterprises.
(2) Such a unit will pay particular focus to the availability of finance to small and medium-sized enterprises.”
Lord Mitchell
My Lords, despite the prompting of my noble friend Lady Hayter, this will not be a quake-making day. We are much more concerned with doing some serious probing and finding out where the Government stand on certain issues.
One thing that came out of the payday loans amendments, to which my noble friend Lady Hayter referred, was that that issue was not highlighted and made clear in that Bill. The subject that I should like to deal with today is SMEs and how they are addressed in this Bill. We are concerned to make sure that SMEs get prominence and that they are not lost in the fine print of the legislation.
I always have a problem with the expression “SME”. I do not know what it means. A small company can be a one-man band. Then there are medium-sized companies and large companies. Sometimes I feel that medium-sized companies have more in common with large companies than they do with small companies. One definition of a small company is that it has up to 50 employees, a turnover of up to £6.5 million and a balance sheet of up to £3.25 million. For medium-sized companies, the figures are between 50 and 250 employees, a turnover of up to £26 million and a balance sheet of up to £13 million. There are several companies with a turnover well in excess of £26 million but I have never considered them as being large companies; in fact, I have always thought of them as being at the lower end of medium-sized companies. Therefore, I am afraid that some of these definitions are probably very out of date.
However, what is not out of date, as I am sure everyone will agree, is that this business sector—let us call it the SMEs—is very keen to lead the economic recovery of our country. All sorts of reports, including one carried out by GE Capital in conjunction with the Warwick Business School, have come to the conclusion that growth, employment and exports are going to come from this sector and that this is going to be the propellant for any recovery. Indeed, the noble Lord, Lord Heseltine, in his magnificent tome, No Stone Unturned, which I thought was very good and very refreshing, said that if one in 10 of the firms that are sole traders hired their first employee or an extra employee, that would increase employment by 480,000. Therefore, recovery comes from even a small business of three people taking on one extra person.
The first part of the amendment suggests that there is a need to dedicate a unit to matters relating to competition affecting SMEs. Small firms are often faced with problems that big firms also face but, of course, small firms do not have the resources, facilities or expertise to deal with them, and recruiting or hiring a legal team is prohibitively expensive. They do not have the time to read the regulatory judgments; it is just a fact of life. Therefore, we feel that such a unit could be one way of helping small firms to grow. The first part of the amendment would provide SMEs with a specific and direct point of contact within the CMA.
The second part of the amendment proposes that the unit in the CMA will focus particularly on the availability of finance for SMEs. Noble Lords will probably have heard me speak on this issue on several occasions but it is something that concerns me all the time. At the moment, many government financing plans are being announced but most of them are not working and, frankly, I do not understand most of them myself. I wonder how people in small businesses who are not involved with them on a day-to-day basis get to grips with some of these programmes.
My constant mantra is that businesses will not grow unless there is a strategy for growth. What business needs is confidence, certainty and clarity. Not surprisingly, 85% of SMEs bank with the big four high-street banks, but this increases the cost of lending and decreases its availability. That hampers growth because SMEs collectively produce more than half of Britain’s GDP. SMEs are too dependent on the banks. I hear so many stories of the proprietors of an SME or its directors going in to see a bank when they need to finance a good project. The bank manager says “no”, and they walk out as if that is the end of the matter. To many it is the end of the matter, but it should not be. There are many other sources of finance out there, and it would be great to me if the banks had less dominance and influence.
I also feel in my heart of hearts that the high street banking sector is not particularly interested in SMEs. They have had their heads turned and, no matter what happens in the other directions that they have gone into, such as investment banking, I cannot see them ever returning to supporting SMEs as they used to. The Federation of Small Businesses has persistently pointed to this as preventing growth in SMEs, which collectively produce more than half of Britain’s GDP. We think that there should be research on this by the CMA on an ongoing basis, which will be dealt with by my noble friend Lady Hayter in a later group.
A couple of weeks ago, a few Members from the Houses of Parliament went to Germany to see the Sparkasse in Berlin. We have all heard about these organisations, but they really were very impressive. They are small savings banks that are responsible for 40% of German lending, just to the SMEs sector. Because they, by culture, have a long-term investment in their clients, they are able to defer and assess credit risks to a much greater extent than we do with our banking organisations, which seem to assess any lending possibility on a computer model that comes out with a yes or no.
There is a real opportunity for new types of financing banks in this country that would help growth. There is a new business bank called Aldermore. Yesterday, much to the Government’s credit, they announced a £100 million facility for peer-to-peer lending. That is a very interesting new development whereby individuals can lend to businesses. It works on a bidding basis, almost like the reverse of eBay. It is a very exciting area, involving companies such as Funding Circle, Zopa, Boost Capital and Credit Asset Management, which I doubt that any of your Lordships have heard of—and to be frank, neither had I. However, it is a fast-growing area of new funding for small businesses. To summarise this part of the amendment, a unit within the CMA that looks to address this problem on an ongoing basis would be of great benefit to initiating and sustaining economic recovery.
Amendment 25G deals with super-complainants. I am going to say barely anything on it, except that we want groups to be super-complainants, if they want to be, and represent SMEs and want to apply for the status. That leads into Amendment 26E, which would mean that “consumers” includes small businesses with up to 50 employees. That change to the definition of consumer would mean that organisations representing SMEs can apply for super-complainant status. Currently, the OFT has to publish a response to any complaint from a super-complainant in 90 days or refer it to the Competition Commission for further investigation. The CMA will now have those responsibilities. The competition issues that SMEs face, such as those previously concerning the concentrated banking sector and any other problems, could then be quickly highlighted. There is often very little difference between a consumer and a small business. Mr Mike Cherry, the chairman of national policy at the Federation of Small Businesses said, in front of the House of Commons Committee,
“our key message would be that, in very many cases, small businesses are, in fact, no different from consumers.”––[Official Report, Commons, Enterprise and Regulatory Reform Public Bill Committee, 19/6/2012; Q49.]
The Federation of Small Businesses has also said that, while it is not in a position to become super-complainants at this stage, it would welcome the possibility that organisations representing small businesses would be able to apply in future. This amendment therefore seeks to recognise that by changing the definition of consumer to include SMEs, thus opening up the possibility that at some point in future it will be able to register as super-complainants. I beg to move.
Viscount Younger of Leckie
My Lords, I am grateful for these amendments, initiated by the noble Lord, Lord Mitchell, which highlight the importance of competitive markets to small and medium-sized enterprises. I welcome the noble Lord to the Dispatch Box and I hope that I can do a little better, in his eyes, in addressing his issues and concerns than perhaps I did before.
I agree that Britain’s small businesses are absolutely vital in leading the economic recovery, and the Government take its role in this area very seriously. This Bill contains a number of measures that will deliver real benefits to SMEs by strengthening and streamlining the competition regime; for example, it will make entry into markets easier, deter anti-competitive practices and speed up competition cases. While I support the overarching intention behind Amendment 24BC—to support SMEs—I do not believe that a dedicated SME unit within the CMA is necessary.
First, the competition authorities already undertake a range of work that directly benefits SMEs. For example, following an OFT market study into the retail pharmacy sector, a number of administrative restrictions on entry were removed, which enabled more competitors, including SMEs, to enter the market. Another example is in banking, which I know the noble Lord, Lord Mitchell, is particularly focused on. OFT interventions in markets such as personal current accounts, small and medium-sized enterprise banking and cash ISAs have found long-standing problems, such as high concentration, low transparency of fees, low levels of switching and high barriers to entry, which hamper effective competition.
The OFT has launched a programme of work designed to achieve a more competitive and customer-focused retail banking sector, and this will consider both personal and SME banking. The OFT also works actively with bodies representing SMEs, such as the Federation of Small Businesses and the British Chambers of Commerce, to identify competition problems faced by SMEs. The Government expect this engagement to continue when the CMA is established.
I urge caution against restricting the CMA’s ability to allocate its resource independently, according to the priorities of the day. There is also a risk that a dedicated SME unit would be inundated with complaints about competitors, rather than competition issues. This would take vital resources away from competition enforcement itself.
The new clause inserted by Amendment 25G would have the effect of bringing small businesses within the definition of “consumer” in Part 4 of the Enterprise Act, which deals with market investigations. This means that super-complaints could also be brought to the CMA about potential competition issues affecting small businesses.
We need to take care when thinking about small businesses within competitive markets, so that the line between consumers and competitors is very clear. The Government consulted on whether to extend the super-complaint system to SME bodies, as the noble Lord’s amendment proposes. The consultation asked for evidence of the type of issues that may be brought to the CMA as a potential super-complaint by small business organisations, but we did not receive any. Furthermore, the majority of responses to the consultation on this question actually opposed the proposal. Respondents felt strongly that SMEs should not be given special status, which could allow them to challenge business practices that might be pro-competition and efficiency-enhancing.
Amendment 26E would have the effect of bringing small businesses within the definition of “consumers” for the purpose of Part 4 of the Bill, which deals with competition reform. This would have the effect of enabling the CMA to launch a market study into a market which seemed not to be working well for small businesses.
I agree with the sentiment behind this amendment, that the CMA should be able to look at markets that are not working well either for consumers or small businesses. I do not believe that it is necessary because the existing legislation has not to date constrained the OFT from considering business-to-business markets. If there are competition issues in these markets, they will usually ultimately affect end consumers as well.
For example, the OFT’s current review of retail banking will look at SME banking as well as personal consumer banking. The OFT’s aggregates market study, which has now been considered in more detail by the Competition Commission for a market investigation, considered how easy it was for small ready-mixed concrete businesses to source cement and aggregates competitively. I hope that noble Lords will see that the competition authorities already carefully consider competition issues that affect SMEs in the existing regime and that legislating to assign resources to a particular area may prevent the CMA from focusing where enforcement is most needed. I would, therefore, ask the noble Lord to withdraw his amendment.
Lord Mitchell
I thank the Minister for his comprehensive reply. There is a need for a dedicated unit; small and medium-sized enterprises need a particular focus point to which they can refer. Our amendments are a “may”, not a “must”. The Minister gave an example of banking and the OFT. That may be, but here we are today, with high street banks still dominating and other types of banking organisations only just coming through.
In summary, we are trying to set up a mechanism that will enable the CMA as it progresses to take actions in favour of the SME sector—to enable it specifically in that area. I ask the Minister to think about what I have said. We will think about what we have said, and with that, I beg leave to withdraw the amendment.