Enterprise and Regulatory Reform Bill

Lord Mitchell Excerpts

Wednesday 14th November 2012 Lords Chamber

[Lord Mitchell]

My Lords, in putting together any speech I have always tried to be logical. Most of all, I have always wanted there to be a beginning, a middle and an end to what I have to say. In addition, I always try to have a linking theme—but with this speech I am all over the place. The Enterprise and Regulatory Reform Bill is a hotchpotch without any discernible theme. There is certainly no beginning, middle or end. It just feels that everything that defies classification elsewhere has been thrown together and given a fancy name. In vain have I searched for the kitchen sink.

I have chosen to speak on three sections of the Bill: the Green Investment Bank, employment and director’s remuneration. My shadow brief is on SMEs so, where possible, I will refer to this very important sector in our economy.

The Green Investment Bank is a good thing and I must compliment the Government for setting it up, well trailed as it was by the previous Government. Choosing winners is a much discredited activity and we as a nation have had our fair share of companies that have been backed by the Government and subsequently failed. Choosing industries is a different matter. The green sector is one the UK should actively pursue.

The desire to lessen our dependency on hydrocarbons has always been driven by several factors, with the reduction of CO₂ emissions being the most prominent. We have only to see the continuing extremes in weather patterns to know that massive forces are changing our climate. Maybe one benefit of Hurricane Sandy will be to drive home to one of the major centres of world finance that these natural phenomena are caused by global warming and the consequences are very painful.

There have also been geopolitical reasons to develop alternative energy. Oil and gas tend to be located in inhospitable locations, often in inhospitable countries. However, suddenly things are changing, as I read that the United States is now expected to become the largest producer of oil and gas in the world by 2020. Due to new techniques in extraction such as fracking, America expects to become self-sufficient in energy very quickly. This will have a major effect on world politics and on the economics of green energy production. Oil prices could well fall and if they do some of the economic incentive for alternative energies will also fall.

Despite that, new companies developing new green technologies are growing at a rapid pace. It is said that in Silicon Valley a third of new investment is being channelled into the green sector. Other countries such as Germany are also pursuing green technologies. The Green Investment Bank will have an initial equity of £3 billion, and we welcome the news that the Government have now obtained state-aid approval for this investment, but the Government have failed to set a date for when the bank will be able to borrow, telling us only that it could be 2015. To be effective we need certainty on this.

Certainty is one of the key components of our economic recovery and there is not much of it around at the moment. Just look at the Government’s reply to the Oral Question asked this morning by my noble friend Lady Worthington. The Government’s reply was all over the place and, even now, I do not know whether they do or do not support onshore wind farms.

As I say, my brief is SMEs. We all know how important they are to our future growth, but also how often they lose out from government initiatives and from public-sector purchasing. The GIB could well be another grand project that will bypass the SME sector. I ask the Minister directly: will the GIB be given a clear directive to direct a certain proportion of its funding towards SMEs?

A year or so ago, a small charity that I was chairman of found itself in a messy employment situation. Without going into the rights and wrongs of the matter, we decided to terminate an employee just a few days over the 12-month period. Predictably, we found ourselves in a grievance situation. We were definitely in the wrong in that we had not followed the exact procedures of employment law to the letter, but we only employed five people and we were, like many charities, living in a hand-to-mouth existence. Money was always short and demands were always great. In common with many small organisations, we did not have a human resources department and our personnel policies were rudimentary. I do not think that we were much different from many other small enterprises.

I am a businessman and my natural instincts are, when faced with a problem, to find a solution quickly and get on with it. It will surprise no one that, in this situation, this course of action was not open to me. We went through the charade of a grievance procedure and the game of issuing letters bound by “Without prejudice” headlines. I found a level of patience within me that I never knew existed.

The worst thing was that in the end we settled with the disgruntled employee by offering him an amount that I had always been willing to pay him right from the start. But we had to go through this convoluted dance to get there. It was a waste of everybody’s time and emotional energy. So I am pleased that, in this Bill, considerable attempts are being made to change employment-dispute procedures. I agree there is an important role for settlement agreements in cases where there is an existing dispute, but we have real concerns that a minority of rogue employers will use the extension of settlement agreements as provided for in this Bill, as a licence to bully employees.

Using ACAS in the initial stages of a dispute must be a good thing and I wish it had been open to my charity when we had our dispute; hopefully it would have been resolved much more quickly. However, I worry that ACAS will be deluged by myriad disputes. Again, I ask the Minister what are the Government’s plans to direct resources into ACAS so that it can be effective in its enhanced role?

I now want to come on to the final part of the Bill which is of particular interest to me: directors’ pay. I might add, with huge relief, that at long last I am no longer a director of anything. I first pay tribute to my noble friend Lord Gavron. He has previously tabled a Private Member’s Bill specifically on this topic. He withdrew it when this Bill was first published because many, although not all, of the clauses in his Bill are now incorporated into this one.

There is always a built-in conflict between shareholders and management and, these days, it seems that management is clearly in the ascendancy. The management team of many large companies tends be a cohesive unit; the shareholders are often disparate. So management, armed with sensitive information, can usually finesse the entitlements of the shareholders. My world is that of the entrepreneur, and my heroes are people who have built up large companies from nothing. Until he died, Steve Jobs of Apple paid himself $1 per year. Jeff Bezos the founder of Amazon has always paid himself an annual salary of $83,000, less than a Member of Parliament receives in this country.

Of course, such individuals are also paid bonuses, but these are real bonuses where, if profits fall, so, too, does the remuneration. To these types of entrepreneurs, the acquisition of personal wealth comes from the capital gain that results from the long-term success of the enterprise; raiding the kitty is not the way to build up a company. It also sets a bad example and creates a precedent that filters through across the organisation.

I am a great supporter of any move that makes directors’ remuneration not only transparent, but also subject to shareholders’ control. Senior managers are adept at finding loopholes, especially where there own paycheques are concerned. I therefore support my noble friend Lord Gavron when he requests that there should be no confusion about management packages: they should include all perks and be signed off in the annual accounts by the company’s auditors. The remuneration committee should present its recommendations every year at the annual general meeting and not every three years.

Many of these masters of the universe believe that they are irreplaceable, that only they can do the job and that that is why they can make such outlandish pay demands. However, it is simply not true: nobody has a monopoly on talent; directors should be much more assertive and not be browbeaten by aggressive senior managers. Sometimes our captains of industry sound like Premier League footballers. My advice is: call their bluff. In the end, business needs to be made more streamlined; red tape needs to be reduced but employees’ rights need to be protected. It is a difficult balance and I hope that, as this Bill proceeds through your Lordships’ House, it will become more acceptable and better understood than it is now.