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Friday, 30 September 2011

Sly by name...

There is much that is unimpressive about Ed Milliband. He sounds like Sylvester the Cat with a bad head cold and he looks sufficiently like his more famous brother to be off-putting.

He does, however, have a point with his criticism of capitalism, not in the detail - in so far as there was any, with its ill-defined definition of predatory behaviour - but in making the criticism in the first place. There is widespread unease, even disgust, at the way in which our economic system now seems to operate. That fatal combination of rapacity and incompetence, which characterised creatures such as RBS’s Fred Goodwin or Northern Rock’s Adam Applegarth, seems to point to a larger truth: that there’s something rotten in the state of capitalism, and not just in banking. The problem lies not in the system as a whole: in the operations or the market; of the laws of supply and demand; or in any of the other fundamentals. No, the problem lies in one of capitalism’s key tools: the public limited company.

Times are hard, people are losing their jobs, many, who stay in employment, do so only by accepting a pay freeze or even a pay cut. We are, however, emphatically not all in this together. Last year, the average earnings of FTSE 100 chief executives rose by a third. Not that there’s anything new in this: for years now, those who control the levers of power in capitalism have operated in a parallel universe where different rules of remuneration, pension and terms of employment – particularly as regards dismissal – operate.

Let us take, for example, Sly Bailey, chief executive of the news group Trinity Mirror. She joined as chief executive in 2003, on a salary of £500,000 and a guaranteed bonus of £250,000. The idea of a guaranteed bonus is so breathtaking in its audacity, that little needs to be said, we can only stand and admire. In fact, any kind of bonus for someone earning £500,000 is pretty extraordinary. If you’re earning that kind of money, what extra effort are you going to put in for the company (if you’re one of those unfortunates that only qualifies for a bonus of the unguaranteed variety)? Are you going to get in earlier? Work the odd weekend? Presumably, were it not for that bonus, you couldn’t be arsed going the extra mile, even for half a million quid.

Since Sly’s appointment, Trinity Mirror’s share price has headed South – down by 90% - while her salary has headed resolutely in the opposite direction. In 2009, she received a two thirds increase in her total remuneration package, which took it to £1.68m. This was despite a 41% fall in pre-tax profits for that year, the closure or sale of 30 titles and 1,700 job losses.

Well, one might say, that’s nobody’s business but the shareholders. If they choose to reward failure to such a spectacular extent, it’s their money and they are free to do with it what they want.

Except that it’s not their money is it? The pension funds and other investment vehicles that own the shares and approve these levels of remuneration are not what might be termed the ultimate shareholders, the people who invest in the pension funds or trusts which buy and hold the shares on their behalf. No, these people get no say.

Why the pension funds vote for such unjustifiable levels of remuneration is a mystery. To argue that there is some sort of market rate and that extraordinary talents would go elsewhere is plainly a self-serving nonsense. Coco the Clown could have done Fred Goodwin’s job for a fraction of his salary and perhaps without ruining a once great bank.

According to her Wikipedia entry, Sly Bailey is ‘one of the most powerful women executives in Europe’. Why would some young pension fund manager seek to make an enemy of her? Vote her the 66% increase; who knows she might be in a position to do you a favour one day, and, what the hell, it’s not your money. This perpetuates a cosily corrupt system, a magic circle in which all are well rewarded and where failure – even failure as monumental as Fred Goodwin’s – will still allow you to walk away with a king’s ransom.

This situation is so dangerous because, first, it corrodes all faith in capitalism and, second, because there is no easy or obvious answer. Legislation would be hard to frame, difficult, if not impossible to enforce and would inevitably have unforeseen and unfortunate consequences.

The only solution I can see lies in a voluntary system: in ethical investment funds which will undertake not to invest in any company in which any employee earns more than 20 times the salary of their lowest paid colleague. Maybe such companies would fail to attract chief executives of sufficient calibre to give shareholders a decent return. Or maybe they would turn out to be a far better punt that Trinity Mirror has been since 2003.

Thursday, 29 September 2011

Oborne's Newsnight triumph

“I will not charm my tongue, I am bound to speak…
‘T will out, ‘t will out; I hold my peace, sir; no;
No, I will speak as liberal as the north;
Let heaven and men and devils, let them all,
All, all, cry shame against me, yet I’ll speak.’’

So spoke Emilia in Othello when she unmasked Iago and it was in similar delightful vein that Peter Oborne let rip on Newsnight last night.

His arena was a Paxman chaired Newsnight discussion on the euro crisis and his targets were ex FT editor and CBI director Sir Richard Lambert and, on a studio screen from Brussels, European Commission spokesman Adameu Altafraj-Tardio.

Mr Altafraj-Tardio said that, as far, as the euro was concerned, there was nothing to see and we should all move along and, anyway, the European Union was a wonderful institution which had kept peace on the continent for 60 years. In fact, of course, Nato and the Warsaw Pact kept the peace for most of that time and today the Greeks might understandably look at the EU and say with Tacitus: “They make a wasteland and call it peace’’.

What little patience Oborne had was soon exhausted by this and he referred to the hapless Mr Altafraj-Tardio as `that idiot in Brussels’ and he did so so frequently that Paxman himself addressed him as “Mr Idiot in Brussels’’. Mr Altafraj-Tardio wasn’t such an idiot that he was going to hang around for that, particularly as Oborne was clearly just getting into his stride, so he stormed out.

Oborne then turned his ire and fire on Sir Richard pointing out that, under his editorship, the FT had been an uncritical admirer of the single currency and, omitting any sort of analysis of benefits/disbenefits, strengths/weaknesses it had urged that the UK should join.

The theme was still Emilia’s:

“You told a lie, an odious damned lie;
Upon my soul, a lie, a wicked lie…’’

Sir Richard mumbled something about the facts having changed since then and that nobody could have predicted that foreigners wouldn’t play by the rules. Well, they could, because they never do (cf Diego Maradona) and one interest rate cannot rule from the Isle of Iona to the Ionian Islands – it couldn’t then and it can’t now and, if Sir Richard couldn’t see that, then he shouldn’t have been holding the positions he held. Now, having been rumbled, he should drop the pretence he knows what he is talking about.

Peter Oborne has written about this at some forensic length in this recent pamphlet Guilty Men which, at this point, he hurled down, like a gauntlet, onto the table between himself and Sir Richard. Here Sir Richard grew positively peevish and appealed to the referee, so Paxman moved the debate on.

In the break before the next bit, Oborne disappeared down the Newsnight trapdoor, to be replaced by some tasty German blonde. Guilty Men had been tactfully removed, doubtless borne away by some BBC lackey, holding it at arms length in a pair of fire tongues.