Businesses: Rights and Responsibilities

Lord Tugendhat Excerpts

Thursday 8th December 2016 Lords Chamber

[Lord Tugendhat (Con)]

My Lords, thanks to my noble friend Lord Hodgson, we have had a wide-ranging debate covering perhaps almost all aspects of the subject, and it is difficult at this stage to come up with anything new. However, I want to make one very obvious point at the outset. All of us who have had experience of the corporate sector know that the first responsibility of a company is to earn profits for its shareholders, because if it fails to do that it will not continue to exist. However much good it may do in other respects, if it is unable to make a profit it will go out of business.

That said, a company’s responsibilities of course go very much wider. Business is now the predominant economic and social force in our society, so it needs to think wider than pure self-interest. This is not just a matter of goodwill; it is a matter of safeguarding a business’s own interests and preserving its stake in the economy. Clearly, there are differences between the ways in which large FTSE 100 and 250 discharge their responsibilities and those in which small publicly owned and private companies do so. Most of what I have to say applies to the larger companies, which is where my own experience lies.

My first point, which applies to companies in all sectors of the economy, is the importance of paying their full share of tax. Of course, companies, like private individuals, should take advantage of whatever concessions the Government have to offer. Private individuals should take advantage of ISAs and other tax-free or tax-exempt opportunities and, where they exist, businesses should do the same, but aggressive tax avoidance and aggressive minimisation of tax continue to bring business into disrepute. I welcome the Government’s clampdown in this area and their efforts to deter the accountancy profession from leading people down that primrose path.

So far as they are able, companies should also do what they can to support the social aims to which the country is committed. By that, I am of course thinking in terms of gender and ethnic equality, creating opportunities for those disadvantaged by ethnicity, gender, or economic or educational circumstances. Under the last heading, perhaps there should be attention paid to the plight of undereducated males—those who would have filled the jobs in factories and elsewhere that are now disappearing at such a rapid rate. We hear a great deal about the problems of ethnic minorities and of women but the problems of the undereducated and underqualified male are something of which society needs to take account. Of course, these are people of varied ethnicity.

Another obvious area in which the corporate sector has a responsibility is in the maintenance and improvement of the environment in the areas in which it operates. This is a matter not just of cleaning up afterwards, as it were, where the law applies obligations, but also of improving the amenities and quality of life within the areas in which companies have their plants and activities. This is perhaps particularly true when those activities cause a certain amount of environmental and social disruption. I would argue, too, that the company’s responsibilities to the community go beyond those of the company itself. It is important that companies encourage their staff and provide ways for them to contribute their skills and time to the social good. The noble Baroness, Lady Bowles, mentioned the social good in her speech. In the NHS—of which I have some experience—and on school boards, in universities, where my noble friend Lady Couttie and I have co-operated in the past, and elsewhere there is a desperate need for more people in the prime of life, who have current skills and are at the cutting edge of the technologies and business practices. By no means as many companies as I would like provide the time, opportunity and encouragement to their staff to undertake activities of that kind. Of course, another area in which it would be helpful to have people who are still active in business to offer their services is the arts.

Companies are often very generous with their financial contributions but, as my noble friend Lady Couttie pointed out, that can also be a form of advertising or even camouflage. Much more important is that people who earn very large sums of money and are prosperous should contribute more to these things themselves. They should themselves be willing to undertake more responsibilities in them.

Finally, I will touch briefly, as others have, on board and top executive pay. Of course, that was the subject of a recent Green Paper. The extent to which board pay has outstripped the rewards of all other sections of the community, let alone the performance of the corporate sector itself, has now become a national scandal. The publication of the Green Paper and the Prime Minister’s recent remarks reflect that. Why can relatively modest achievement in business now be so much better rewarded than high achievements in other walks of life? I am not here referring to chief executives with particular qualities. There are chief executives who make a tangible difference. There are chief executives who are brought in from abroad on very high salaries. Indeed, the Government tend to appoint them. The Governor of the Bank of England is one example; rather less successful was the lady who was doing the child sex abuse inquiry. Often, as in the case of the Governor of the Bank of England, they give very good value for money.

However, it is not people like that whom I am referring to but the directors who are doing the mundane tasks in the executive suite, fulfilling the usual functions, who have no particular world-class attributes that would lead them to be poached from one country to another. It is at that level where we have seen some of the most astonishing increases in pay. Why should that be? The reason, I think, is quite simple. Unlike in most other occupations, boardrooms set their own pay. Of course, I know about remuneration committees. I, too, have sat on a number of them and have had the benefit of the advice of the remuneration consultants. But ultimately boards are responsible for setting their own remuneration. The way in which this is now increasingly done in our society, through devices such as stock options, LTIPs and all the rest of it, has led to a situation in which people who have had some success, but nothing spectacular, in the business world earn far more than people who have made much greater contributions in other walks of life.

I will have an opportunity to return to this subject when we debate the Green Paper and, I hope, again when legislation is introduced. But I cannot resist ending by saying that some of the ideas in the Green Paper are derived from a Bill which Lord Gavron—now, sadly, dead—introduced with my support and that of the noble Lord, Lord Taverne, three years ago, I think. I did not notice any reference in the Green Paper to our Bill but it paved the way for some of what the Government are doing. I hope that that means that when the Government introduce legislation, they will be able to maintain that form of tripartite co-operation.