HL Deb 29 July 1998 vol 592 cc1507-9

3.6 p.m.

Lord Dormand of Easington asked Her Majesty's Government:

Whether they will expedite their report on progress made in monitoring the application of "best practice" principles set out in the Greenbury, Hampel and Cadbury reports on payments made to private sector executives.

The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)

My Lords, the Government have made it clear that they expect to see early evidence of companies complying with the spirit of both the Greenbury Code of Best Practice and the Hampel Report. The Government also expect senior executives to show that they understand the importance of sustainable pay rises in all sectors and at all levels. Although we will not be rushing into unconsidered action on directors' remuneration, we are equally not ruling out any particular policy response at this stage.

Lord Dormand of Easington

My Lords, I thank my noble friend the Minister for that Answer. As there are now three reports on the matter and as the Prime Minister and the Chancellor of the Exchequer have recently made yet another strong criticism of what they call "boardroom greed", is not early action—indeed "early" as my noble friend just said—necessary? Does my noble friend agree that there are at least two aspects which cause concern? First, there is the understandable pressure that is now coming from workforces for higher than inflation wage increases, a pressure which, I suspect, will grow even more in coming weeks; and secondly, there is the serious danger to a Labour Government in allowing an ever-increasing gap to emerge between the richest and the poorest in society.

Lord Simon of Highbury

My Lords, in commenting on the statements that have been made, I am quite sure that all of us would wish that shareholders, with whom the responsibility lies, take appropriate action on settlements within companies that do not appear to reflect their performance and their progress. On my noble friend's second point, I am sure that none of us wishes to see settlements that do not reflect productivity and which, therefore, make much more difficult the sustainable and effective management of a balanced economy, which will encourage investment, create more jobs, and make more companies successful.

Lord Chalfont

My Lords, is the Minister aware that the recently issued Stock Exchange code of best practice brings together many of the points raised in the three reports to which reference has been made? Therefore, does he agree that, if the latter are properly followed and observed, many of the fears raised by the noble Lord will be removed?

Lord Simon of Highbury

My Lords, I thank the noble Lord for that observation. I absolutely agree with him. Indeed, I believe that the final Stock Exchange report included all of the many sensible and well-supported suggestions contained in the Cadbury Report, the Greenbury Report and the Hampel Report, whose author, I am glad to say, is now sitting in the Gallery listening to our debate. All those suggestions, if better applied, would cause companies, the workforce, the shareholders and other stakeholders to see better governance and better performance in our country.

Lord Ezra

My Lords, in view of the fact that, as the noble Lord, Lord Dormand, pointed out in his Question, there have now been three reports on the subject of corporate governance, and indeed the Stock Exchange has also produced reports on the subject, is it not appropriate that the Government should produce a consultative document on the issue to include the vexed and controversial issue of senior executive pay?

Lord Simon of Highbury

My Lords, I thank the noble Lord for the observation but that is precisely what the Government have done. On 4th March the Secretary of State for Trade and Industry announced that there would be a review of company law during the course of this Parliament in which we would review among other things the role of the shareholder and the relationship between shareholders and senior management on such issues as remuneration. I think our policy is well known. We want to see more openness, more accountability and more involvement of the shareholders, whose responsibility these issues are. I am quite certain that that will be considered as we go forward with the company law review.

Lord Islwyn

My Lords, in the meantime does the Minister agree that a better example should be set in this area by the present president of the CBI?

Lord Simon of Highbury

My Lords, I cannot comment on the example of the present president of the CBI because he has hardly been in post long enough to set one. My view is that he, like many of the management team of the CBI, is as involved as we all are in strengthening our industrial performance, improving our governance and ensuring that shareholders do what is appropriate to ensure that good governance is applied throughout our nation.

Lord Barnett

My Lords, as my noble friend will know, some 70 per cent. of shares in the major companies are in the hands of institutions. Would he care to prepare any new papers—although we have had enough on this subject—showing how the Government measure productivity in the hands of major company directors?

Lord Simon of Highbury

My Lords, in a good company the relationship between directors and the company is a symbiotic one. The result in terms of the value that is created for all the stakeholders in the company is positive. I think there are many ways of measuring performance, but what we must do as a principle is to make sure that governance ensures that the performance of individuals and of the workforce in general are taken into account in relation to all the awards in the company.