Businesses: Rights and Responsibilities

Lord Stevenson of Balmacara Excerpts

Thursday 8th December 2016 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I congratulate the noble Lord, Lord Hodgson of Astley Abbotts, on securing this interesting debate. I have often found myself in opposition to him on various Bills and committees over the years but I have noticed a rather worrying tendency to agree more and more with what he says—I hope that is reciprocated—but I am sure it is because we are both squash players and accountants and there are probably other things that bind us together. I will not delay the House further with my ruminations on that point. I thank other noble Lords for their contributions, which have informed the debate.

We are talking about the businesses that make up the United Kingdom and fuel our economy, employ our talent and drive our innovation. Of course, the UK is home to a huge range of outstanding businesses, with strengths in sectors ranging from automotive and aerospace to digital and biotech and our excellent cultural and creative industries. We should not be ashamed of having a strong and vibrant economic sector and good business and industry. We have more manufacturing than people ever give credit to. Of course, as has already been pointed out, the UK private sector provides employment and therefore livelihoods for over 26 million people. It is something that we must cherish.

I would claim that changes to create a more stable monetary policy and the introduction of a vigorous competition policy under the previous Labour Government made the UK one of the best places to start and run a business. Of course, we on this side want that to continue. Several noble Lords have drawn attention to a list of scandals we have had to endure over the past few years, including: the conduct of the banks in the financial crash, for which justice still has not arrived; the continuing saga of companies practising tax avoidance, to which many noble Lords referred; and Sports Direct and BHS. All is not as good as it might be in this area.

The noble Lord, Lord Hodgson, suggested that political decisions taken in recent elections had their origins in feelings that the economic system had failed people. That probably has a significant grain of truth in it. He drew the conclusion that companies and businesses needed to have a rethink, otherwise even more confidence would be lost, and we would all be the worse for that. I think he also said that it would not be sufficient to stand aside and blame politicians, as many people do. But we have to bear in mind that businesses in all sectors have to make profits, as the noble Lord, Lord Tugendhat, has just said. However, they have wider responsibilities and we need to focus on the latter part of that equation, as trailed in the Motion.

The list that the noble Lord, Lord Hodgson, came up with included ownership and the question of why shareholders were no longer owners, in a real sense, of the businesses, having been divorced by the way in which shareholdings were held. Several noble Lords referred to how pay has now got out of all proportion in the sector. I think it was described as “in denial”, while the noble Lord, Lord Tugendhat, called it a national scandal. We need something done in that area. Attention was also drawn to employment practices. There were questions about why we did not have more employer engagement, particularly at board level. Good things can also happen with businesses, such as their involvement with charitable work, but perhaps they need to do more in engaging with the community.

I would have added environmental concerns to that list, which others have raised, the question of diversity, which was picked up by the noble Lord, Lord Taylor, and human rights in their broader sense, particularly for those extractive industries and others which operate abroad. It is fair to point out that some of the issues in the list I have just given are raised in a statutory instrument that we will discuss in Grand Committee on Monday.

My noble friend Lord Monks posed a much deeper question than simply whether we could do more to list things that businesses could be involved in. He raised the question of whether capitalism itself was in crisis, and not in fact too big to fail. There was a lot of weight in his argument, which we must consider carefully. It is obviously right that we could change employment practices. We could adjust pay and do something about diversity, but we would not necessarily have attacked some of the basic issues that are causing the problems in the long run. In that context it is interesting that the noble Baroness, Lady Bottomley, raised in her excellent speech a lot of the work that has been done recently in the corporate world, with reports from Cadbury through to Higgs and so on. My conclusion is not that that is a bad thing; it is good, but the fact that so many reports have had to be produced suggests that we ought to pay attention to the flag-waving there.

What is to be done? I am sure the Minister, when he comes to respond, will trail again the recently published Green Paper on these issues. He nods, and I am sure we will listen to this again. I will therefore give him a shot across the bows first, so that he can anticipate the response we will give. As I think we have gone on record as saying, this Green Paper is not a strong one. It does not tackle some of the basic issues raised by my noble friend Lord Monks and others. Our economy is hit by short-termism which saps investment, penalises employees and obscures the idea that rewards should be given for long-term performance. We have failed to solve the productivity gap with comparable and competitor nations. It is a continuing problem and we seem to have no way in which we can resolve it. Executive pay, as we have talked about, is out of control. What has happened to the Prime Minister’s promise to publish plans to have not just consumers represented on boards, but workers as well? She said that this was,

“because we are the party of workers”.

Well, that had to be watered down quickly.

As we heard from the noble Baroness, Lady Couttie, small businesses get such a raw deal in this world of great commerce and success. The late payment arrangements are ridiculous. The power of larger companies to exercise duties on small companies, because they do not have the resources to fight back, for payment if they are to stay on suppliers’ lists, along with the ability to change the terms contracted for and, as she said, to cut pay and unmake agreements that have been arranged are just ridiculous. The new small business commissioner does not have the powers to intervene in these matters; that office should have those powers. Just as with the Groceries Code Adjudicator, a good idea has been lost because it has not been given the authority to carry out its required duties.

The basic assumption by the Government in the Green Paper is that the existing corporate governance code is satisfactory. There is a suggestion that it might be extended from the present listed companies to large privately held companies. But the test will be: if these proposals had been in place, would the scandals we have been talking about have been avoided, such as the BHS and Sports Direct scandals and others? It is worth pointing out that BHS was not covered by the code in any case, so it would not have had much effect, but Sports Direct was, yet there was a crisis involving that company.

The code needs to be strengthened. It cannot be used as a gold standard because enforcing it does not get us to where we want to be. I hope that when the long-awaited industrial strategy comes forward it will address at a much more serious level some of the issues that we have been reflecting on today. It is a real opportunity, and we hope it will not be missed. It needs to take on and reform the Companies Act. It needs to sort out the problem about shareholders being divorced from ownership. It needs to strengthen the role and function of trade unions because they make a worthwhile contribution in British industry. It needs to look at trying to set all company boards the responsibility for long-term duties for growth. It must ban short-term actions on pay and rewards and trading activities that destroy businesses as much as they destroy others. It needs to take a firm hand on diversity, not just at board level but at senior executive level. It needs to think again about whether there should be a public interest test for takeovers from overseas—the second Cadbury problem was raised by the noble Viscount, Lord Eccles. It needs to tackle training and make sure that we have a workforce that will take us forward into the 21st century and beyond, and it must, for the last time, nail the problem of why we have low productivity. The best idea was the suggestion made by the noble Lord, Lord Tugendhat—that we pick up the Gavron Bill, which would solve a lot of the problems.