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bailed out by the government during in the financial crisis. Now it is | :00:03. | :00:13. | |
:00:13. | :00:14. | ||
time for HARDtalk. Britain's backlash against the | :00:14. | :00:18. | |
bankers is gathering momentum. Political pressure has forced one | :00:18. | :00:24. | |
bank chief to forgo a hefty bonus. There are loud demands for a wider | :00:24. | :00:28. | |
crackdown on a stratospheric executive pay. Suddenly, | :00:28. | :00:32. | |
politicians of all stripes are insisting that capitalism be | :00:32. | :00:38. | |
responsible. I am joined by three guests - a leading fund manager, a | :00:38. | :00:45. | |
long-time Investment Bank chief and at British CEO. Does capitalism | :00:45. | :00:55. | |
:00:55. | :01:19. | ||
Will come all too HARDtalk. Let me start with the news at that the | :01:19. | :01:23. | |
boss of the Royal Bank of Scotland has reluctantly agreed to wait for | :01:23. | :01:33. | |
:01:33. | :01:33. | ||
Apology for the loss of subtitles for 75 seconds | :01:33. | :02:48. | |
In the case of the current board of the Royal Bank of Scotland, there | :02:48. | :02:52. | |
is some sympathy for obvious reasons. Stephen Hester was part of | :02:53. | :02:57. | |
that the solution, rather than part of the problem. He brought are | :02:57. | :03:02. | |
broken bank to a better condition than it is. If the board of the | :03:02. | :03:07. | |
bank is not going to determine the bonus, who is? | :03:07. | :03:12. | |
You have wide experience. You have thrived in the decades in which we | :03:12. | :03:18. | |
have seen salaries for top players in the big banks go through the | :03:18. | :03:22. | |
roof. Does that mean there you are somewhat worried about the public | :03:22. | :03:27. | |
money? I think it is very interesting that | :03:27. | :03:32. | |
things have changed dramatically. I have been in the city for 29 years | :03:32. | :03:38. | |
and certainly, when I started out and up until 15 years ago, salaries | :03:38. | :03:42. | |
were relatively low so what people took home on a monthly basis was | :03:42. | :03:46. | |
low and that was good news for the banks because it meant that the | :03:46. | :03:50. | |
fixed overheads were Milan and then there was a bonus pool and it was | :03:50. | :03:56. | |
very formulaic in those days. That meant that roughly 20% of the | :03:56. | :04:01. | |
profits would be distributed to the management team and everybody | :04:01. | :04:03. | |
working in fat bank. What went wrong was when people started | :04:03. | :04:13. | |
looking at what was going on in Matt America where salaries were | :04:13. | :04:16. | |
significantly higher. When globalisation occurred, London | :04:16. | :04:21. | |
became an important global centre and that link with profit differs - | :04:21. | :04:26. | |
- disappear and now it seemed to be the case that it is a body is good | :04:26. | :04:31. | |
at their job, you must pay them more than the last year and that is | :04:31. | :04:36. | |
what seems to be what is happening in case they leave. This is that | :04:36. | :04:41. | |
that which I find difficult because, as do the public, if a bank is | :04:41. | :04:46. | |
doing badly and there are no profits, why should people be paid | :04:46. | :04:50. | |
large bonuses? I suppose the point is that Stephen | :04:50. | :04:54. | |
Hester was widely perceived to be doing pretty well and the reaction | :04:54. | :05:02. | |
was if -- of one key player, Sir Roger Karl, was that, what we are | :05:02. | :05:06. | |
seeing right now is unfair vilification. He said there does | :05:06. | :05:11. | |
not in the public interest in the long-term because it will deter | :05:11. | :05:16. | |
others of doing similar jobs of national importance. | :05:16. | :05:19. | |
I think roll bankers, and is a separate case where we have a | :05:20. | :05:28. | |
situation where the public art part owners. There is a question of what | :05:28. | :05:36. | |
was agreed by Stephen Hester, where the public agree to this end he was | :05:37. | :05:41. | |
entitled to receive a bonus and it was agreed by the board but it was | :05:41. | :05:45. | |
all handled by a strange way because halfway through the whole | :05:45. | :05:48. | |
discussion there was a piece of information that came out that the | :05:48. | :05:53. | |
chairman of the bank had been offered a bonus of over �1 million | :05:53. | :05:56. | |
and turned it down and then it looked strange because he turned | :05:56. | :06:01. | |
his bonus down by Stephen Hester was still getting his bonus. | :06:01. | :06:08. | |
I will tend to you now because what we have heard from two insiders is | :06:08. | :06:13. | |
that they have real concerns about the wake salaries have developed, | :06:13. | :06:18. | |
pay and remuneration has developed over the last decade. You bring a | :06:18. | :06:23. | |
different perspective. Firstly, you were in politics as a Liberal | :06:23. | :06:28. | |
Democrat. You are still in politics but you are still sitting at in a | :06:28. | :06:32. | |
higher pay commission to look at whether people's salaries have just | :06:32. | :06:36. | |
got out of balance with the rest of the economy. I am assuming you | :06:36. | :06:43. | |
believe the simple answer is yes. They clearly have got out of | :06:43. | :06:48. | |
balance. The problem as, they have got out of balance at a time when | :06:48. | :06:53. | |
profits have fallen. In the case of the Royal Bank of Scotland and at | :06:53. | :06:57. | |
Lloyds, you have state owned banks paying the type of salaries that | :06:57. | :07:03. | |
you would only expect to get at the bank was paying well. We are having | :07:03. | :07:08. | |
a difficult time in Parliament, cutting the benefits of poor people. | :07:08. | :07:12. | |
One of the reasons this is happening is to get finances back | :07:12. | :07:16. | |
in shape. One of the reasons they are out of shape is because we are | :07:16. | :07:20. | |
bailing out banks. It is not surprising there is so much public | :07:20. | :07:26. | |
anger about it and that is why there is so much political pressure. | :07:26. | :07:29. | |
So you are saying that if the banks were doing well, you would not have | :07:29. | :07:35. | |
a problem with a bank paying up to �8 million to its chief executive? | :07:35. | :07:42. | |
I would have less of a problem. So when you talked not so long ago | :07:42. | :07:49. | |
about obscene differentials between the ratio of the top directors' | :07:49. | :07:53. | |
Kenning to the average wages of a retail banker, and called it | :07:53. | :07:57. | |
obscene, I am puzzled as to why you are using their language if you do | :07:57. | :08:02. | |
not have a problem? I do not have a problem with the | :08:02. | :08:05. | |
successful anybody earning a significant amount of money. What | :08:05. | :08:09. | |
is happening with the top executives in the United Kingdom is | :08:09. | :08:13. | |
the direct of increase of their pay has just gone out of kilter with | :08:13. | :08:17. | |
what has been happening to salaries elsewhere. | :08:17. | :08:24. | |
But as Nicholas said, they are competing in a global market place | :08:24. | :08:28. | |
and going by the American raids, they have to compete? | :08:28. | :08:34. | |
Most people do not have to compete. Most people and the current market | :08:34. | :08:39. | |
of financial services are not in a position where they can pick and | :08:39. | :08:43. | |
choose jobs around the world. There may be at but only a very few. What | :08:43. | :08:48. | |
we have come to the conclusion is that there are several problems. It | :08:48. | :08:52. | |
is difficult to understand what people are getting paid at the top. | :08:52. | :08:57. | |
There are various types of pay - basic pay, short-term bonus and | :08:57. | :09:01. | |
long-term bonus. So we are suggesting it should be easier to | :09:01. | :09:04. | |
look at what people are getting paid. | :09:04. | :09:11. | |
Total transparency. It me put it at Nicola. You are famous for being | :09:11. | :09:16. | |
successful and having huge pay packets. You do not work for a | :09:16. | :09:21. | |
nationalised bank. But if you are talking about transparency in the | :09:21. | :09:26. | |
central of London, have you always told people what you have earned? | :09:26. | :09:32. | |
I think it was pretty transparent in the past. You had your paid | :09:32. | :09:36. | |
salary, you paid bonus and your long-term equity plan. | :09:36. | :09:43. | |
So what was your biggest earning? I had never earned more than �2 | :09:43. | :09:52. | |
million per year but a fire had accounted for extra plants -- if I | :09:52. | :09:56. | |
had accounted for extra bonuses that I would have got if I had | :09:56. | :10:02. | |
stayed, it may have been bigger. The minute you walk out of a job, | :10:02. | :10:06. | |
you walk away from certain long- term bonuses. | :10:07. | :10:11. | |
You did they use the phrase only 2 million. | :10:11. | :10:16. | |
Well, compared to people who would be earning $50 million. | :10:16. | :10:21. | |
But you'd have expressed concern about the way financial and City | :10:22. | :10:31. | |
:10:32. | :10:35. | ||
salaries have gone. You talked about obscene differentials. I dare | :10:35. | :10:39. | |
say that �2 million was a heck of a lot more than the receptionist at | :10:39. | :10:44. | |
your business. What to you are an obscene differential? | :10:44. | :10:48. | |
But in that particular instance, I was the chief executive and I had | :10:48. | :10:55. | |
built a sizable business. The two jobs when I was paid mots, one I | :10:55. | :11:02. | |
turned around with a team of people a big division of a bank which was | :11:02. | :11:07. | |
in dire straits and we created a huge amount of shareholder value so | :11:07. | :11:12. | |
I think that was justifiable. The second time was when I set | :11:12. | :11:16. | |
something up from scratch and build shareholder value. So I think it is | :11:16. | :11:19. | |
a question of what other shareholders getting and what are | :11:19. | :11:22. | |
the employees getting and I do not think you can make comparisons | :11:22. | :11:28. | |
because in every single business, there will be a huge difference | :11:28. | :11:33. | |
between the CEO and the secretary. I think the comparison is | :11:33. | :11:39. | |
irrelevant. The Cam, you were chairman of | :11:39. | :11:43. | |
Lazards International for a long time but you are also are committed | :11:43. | :11:48. | |
to question. You have recently talked very interestingly about the | :11:48. | :11:52. | |
way that big business and financial institutions have to adopt a new | :11:52. | :11:55. | |
way of thinking, not just about remuneration but our whole series | :11:55. | :12:00. | |
of issues in which they do business. What do you mean by that and how | :12:00. | :12:03. | |
does your morality and your Christian world-view play into what | :12:03. | :12:08. | |
do you think business must now do? I think the first thing is, we have | :12:08. | :12:13. | |
to discover a way of having a discussion about using the word | :12:13. | :12:20. | |
morality. It is diffic is diffic. We do not like using the word right | :12:20. | :12:25. | |
or wrong. A whole grammar of the discussion of right and wrong has | :12:25. | :12:30. | |
to be recovered. One of the initiatives we are working on his | :12:30. | :12:33. | |
connecting the finance world and the ethical world so that they can | :12:33. | :12:37. | |
be a dialogue. It may give you an example... | :12:37. | :12:41. | |
Before we go further I want you to reflect on what you have heard. We | :12:41. | :12:46. | |
have taught already about the differentials between those at the | :12:46. | :12:52. | |
top and the bottom. When you talk about morality, is it in any way | :12:52. | :12:57. | |
immoral in your views that the average differential between the | :12:57. | :13:02. | |
CEO of a company and the average worker inside a company is about a | :13:02. | :13:12. | |
:13:12. | :13:16. | ||
multiple of a hundred and 20. Is There is a gap that is too large, | :13:16. | :13:22. | |
that is Claire. It is not just in financial sectors. It is a moral | :13:22. | :13:27. | |
issue, it is plain wrong? It is wrong that there is such a | :13:27. | :13:32. | |
disparity. The example I was going to give, that was bandied about | :13:32. | :13:39. | |
Martin Davos in the past week, the 440 largest banners in America, and | :13:39. | :13:43. | |
the equivalent of 150 million people at the bottom end of the | :13:43. | :13:48. | |
pile. What has happened in the last ten years, in this easy money | :13:48. | :13:53. | |
period, the Gatt between those who have and have not has got wider. | :13:53. | :14:03. | |
That is a moral issue. -- the gap. What is capitalism? Moral markets, | :14:03. | :14:07. | |
what has it delivered for the ordinary person? That is the | :14:07. | :14:12. | |
burning issue we have to address. What we have to consider, how to | :14:12. | :14:16. | |
change things. If you believe they need to be changed, you have said | :14:16. | :14:21. | |
if they are not changed you can see real trouble looming for the | :14:21. | :14:29. | |
world's catalyst economies, does change come from government? -- | :14:29. | :14:37. | |
capitalist. No, we do not live in a communist state. Democracy runs | :14:37. | :14:41. | |
through companies. That is why we have shareholder meetings and | :14:41. | :14:46. | |
resolutions that shareholders vote on. It is up to the shareholders | :14:46. | :14:51. | |
and the directors, who are very -- there to protect the interests of | :14:51. | :14:58. | |
the shareholders. I think we are reliant on them. The government | :14:58. | :15:02. | |
France the roles of the game. In the UK the government is | :15:02. | :15:08. | |
considering giving shareholders a much stronger veto power. Frankly, | :15:08. | :15:15. | |
that does not sound like it is going to work. 75% will be able to | :15:15. | :15:22. | |
abstain. Make it more draconian. What about the government saying | :15:22. | :15:28. | |
employees, shop floor workers should be represented on boards? | :15:28. | :15:31. | |
They could be. Certainly with pension funds we have | :15:31. | :15:38. | |
representation. A few years ago it was decided that there should be | :15:38. | :15:41. | |
more employees representation of the pension fund. That worked | :15:41. | :15:47. | |
perfectly well. I am not sure it is going to make a huge difference. We | :15:47. | :15:57. | |
:15:57. | :15:58. | ||
have already had numerous codes. We have had all sorts of things. | :15:58. | :16:08. | |
:16:08. | :16:09. | ||
Commissions of inquiry is... It was made very clear what should be | :16:09. | :16:15. | |
happening, but no-one has taken much notice. We should rattle the | :16:15. | :16:20. | |
cage, please take more notice. Sceptics might say, the message is | :16:21. | :16:25. | |
that businesses need to take on, a sense of social responsibility, | :16:25. | :16:31. | |
that message has been out there for years. The difference is the | :16:31. | :16:38. | |
extraordinary anger that is felt everywhere in the world. Not just | :16:38. | :16:43. | |
in this country. It is at the disparity that has grown. Every | :16:43. | :16:48. | |
business person that is worth his salt has tuned into trying to deal | :16:48. | :16:54. | |
with a worldwide phenomenon. Globalisation has brought us closer | :16:54. | :16:59. | |
together. One of the issues that have to be dealt with is how to | :16:59. | :17:03. | |
educate a new generation into the virtues of conscience as opposed to | :17:03. | :17:09. | |
contract? You can have a number of regulations. When banks are still | :17:09. | :17:13. | |
paying, you have talked about the lack of performance relationship, | :17:13. | :17:18. | |
they are still paying their top executives many millions of pounds, | :17:18. | :17:23. | |
I am not convinced at all that business leaders understand this | :17:23. | :17:28. | |
new language. It takes time. This language is very difficult to bring | :17:29. | :17:34. | |
about. The community is expressing a view, yes government makes it | :17:34. | :17:38. | |
known, but also the boards of most companies that one is talking to at | :17:38. | :17:44. | |
the moment are aware of the issues. We are still working in a | :17:44. | :17:49. | |
competitive market. Let's talk about the politics. I said maybe | :17:49. | :17:54. | |
the government has a larger role to play, but you are a politician, you | :17:54. | :17:58. | |
have talked about needing to establish a new level of fairness | :17:58. | :18:07. | |
in the business world. Let's talk taxation. Is it time for those who | :18:07. | :18:14. | |
have the most to face punitive levels of taxation? I do not think | :18:15. | :18:18. | |
that is the sensible way forward. The roles have got to change to | :18:18. | :18:23. | |
make it easier for the system to work as it is supposed to do. | :18:23. | :18:29. | |
Shareholders have to be given more power. People who are individual | :18:29. | :18:36. | |
shareholders or have a stake in a pension fund, need to be using | :18:36. | :18:44. | |
people power. The equivalent needs to be working here. Relying on | :18:44. | :18:49. | |
shareholders is not going to work. Shareholdings are divvied up across | :18:49. | :18:53. | |
the pension funds, there is no way relying on shareholdings is going | :18:53. | :18:56. | |
to deliver this brave new capitalism that you have talked | :18:56. | :19:02. | |
about. I do not agree with that. A huge proportion of shares are | :19:02. | :19:10. | |
traded directly by individuals. People who have accounts at the | :19:10. | :19:20. | |
:19:20. | :19:20. | ||
bank's, have said, we are going to choose for -- a bank that operates | :19:20. | :19:26. | |
in an ethical way. If that happened you would find a shift in behaviour. | :19:26. | :19:32. | |
That might be a more effective way of pure consumer power putting | :19:32. | :19:38. | |
pressure on management. That might sound a little bit technical. | :19:38. | :19:44. | |
President Obama is using language that is not technical at all. He is | :19:44. | :19:48. | |
talking about the Warren Buffett test. If a billionaire is paying | :19:48. | :19:57. | |
less than your workers in tax, than your secretary or low-level worker, | :19:58. | :20:02. | |
to Barack Obama that smells of deep unfairness. The system has to | :20:02. | :20:09. | |
change to fix that. I believe it does in the United States. Capital- | :20:09. | :20:19. | |
:20:19. | :20:20. | ||
gains tax... We have a 50% tax rate. The situation about tax at the top | :20:20. | :20:29. | |
end here is very different. Capital-gains tax is 28%. I do not | :20:29. | :20:33. | |
actually think that by ratcheting taxes up a bit more you are | :20:33. | :20:39. | |
suddenly going to get people paid less. When we put a tax on bonuses, | :20:39. | :20:45. | |
the banks paid the bonus and the tax. We want to try and change | :20:45. | :20:50. | |
behaviour of. President Obama talks, his rhetoric is wonderful. The | :20:50. | :20:54. | |
delivery is not there. We are wondering with how you can change | :20:54. | :21:02. | |
behaviour. -- grappling with how the star a few months ago you when | :21:02. | :21:06. | |
to talk to the occupied protesters in the city of London outside St | :21:06. | :21:16. | |
:21:16. | :21:19. | ||
Paul's Cathedral. Given everything I have heard from you today, had | :21:19. | :21:23. | |
you believe you will convince those people in those sort of protest | :21:24. | :21:29. | |
movements that you are serious about changing capitalism? The way | :21:29. | :21:33. | |
to do it is to show there is a lively and engaged debate on the | :21:33. | :21:38. | |
issue. Debate is fine, but in reality, everything we have | :21:38. | :21:43. | |
discussed about what the banks is going, suggests talk is cheap. | :21:43. | :21:52. | |
have got to start. It is going to be very difficult to take the right | :21:52. | :21:56. | |
sort of action. Of course we have got to have action taken by the | :21:57. | :22:00. | |
boards of all of the companies, whether they are industrial or | :22:00. | :22:06. | |
financial companies to review renumeration and reward those who | :22:06. | :22:12. | |
create well. This is a very important moral imperative, to | :22:12. | :22:18. | |
create Wells and create jobs. If we can manage to move jobs to the | :22:18. | :22:23. | |
front of the agenda and show there is a market economy that is | :22:23. | :22:30. | |
delivering jobs to young people in particular. I think this would have | :22:30. | :22:34. | |
achieved it, even though it is a narrow field. What will capitalism | :22:34. | :22:40. | |
look like in ten years' time? Will it be fundamentally different? | :22:40. | :22:44. | |
may well look fundamentally different. It is very difficult to | :22:44. | :22:49. | |
ignore the sort of noise that we are now hearing. From politicians | :22:49. | :22:56. | |
and the public through protests and so on. The point was made that time | :22:56. | :23:02. | |
is needed to change these things. We have seen a period of excess, | :23:02. | :23:06. | |
now we are going through a period of austerity. A lot of countries | :23:06. | :23:11. | |
are having to pay down debt. That is affecting individuals as well as | :23:11. | :23:16. | |
countries. These sorts of packages that we have been seeing will | :23:16. | :23:20. | |
reduce in size and people will eventually listen. Which is why I | :23:20. | :23:28. | |
am not in favour of government taking action. I think it will take | :23:28. | :23:33. | |
-- happen on its own. Do you believe that? I think it will need | :23:33. | :23:40. | |
the odd nudge or two. I also think it is going to require a movement | :23:40. | :23:49. | |
of individuals to put pressure on people... Just a final thought. We | :23:49. | :23:54. | |
have talked about morality, top pay, the word we have not used his greed. | :23:54. | :23:59. | |
Is the era of greed going to have to end? It is going to have to end | :23:59. | :24:03. | |
in the way we have known it. Otherwise the differentials would | :24:03. | :24:09. | |
just keep getting worse. That has got to stop. I think it does have | :24:09. | :24:15. | |
to end. It has been a very difficult period for the world. | :24:15. | :24:20. |