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Responsible Capitalism

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bailed out by the government during in the financial crisis. Now it is

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time for HARDtalk. Britain's backlash against the

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bankers is gathering momentum. Political pressure has forced one

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bank chief to forgo a hefty bonus. There are loud demands for a wider

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crackdown on a stratospheric executive pay. Suddenly,

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politicians of all stripes are insisting that capitalism be

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responsible. I am joined by three guests - a leading fund manager, a

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long-time Investment Bank chief and at British CEO. Does capitalism

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Will come all too HARDtalk. Let me start with the news at that the

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boss of the Royal Bank of Scotland has reluctantly agreed to wait for

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Apology for the loss of subtitles for 75 seconds

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In the case of the current board of the Royal Bank of Scotland, there

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is some sympathy for obvious reasons. Stephen Hester was part of

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that the solution, rather than part of the problem. He brought are

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broken bank to a better condition than it is. If the board of the

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bank is not going to determine the bonus, who is?

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You have wide experience. You have thrived in the decades in which we

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have seen salaries for top players in the big banks go through the

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roof. Does that mean there you are somewhat worried about the public

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money? I think it is very interesting that

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things have changed dramatically. I have been in the city for 29 years

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and certainly, when I started out and up until 15 years ago, salaries

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were relatively low so what people took home on a monthly basis was

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low and that was good news for the banks because it meant that the

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fixed overheads were Milan and then there was a bonus pool and it was

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very formulaic in those days. That meant that roughly 20% of the

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profits would be distributed to the management team and everybody

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working in fat bank. What went wrong was when people started

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looking at what was going on in Matt America where salaries were

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significantly higher. When globalisation occurred, London

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became an important global centre and that link with profit differs -

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- disappear and now it seemed to be the case that it is a body is good

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at their job, you must pay them more than the last year and that is

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what seems to be what is happening in case they leave. This is that

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that which I find difficult because, as do the public, if a bank is

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doing badly and there are no profits, why should people be paid

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large bonuses? I suppose the point is that Stephen

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Hester was widely perceived to be doing pretty well and the reaction

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was if -- of one key player, Sir Roger Karl, was that, what we are

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seeing right now is unfair vilification. He said there does

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not in the public interest in the long-term because it will deter

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others of doing similar jobs of national importance.

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I think roll bankers, and is a separate case where we have a

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situation where the public art part owners. There is a question of what

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was agreed by Stephen Hester, where the public agree to this end he was

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entitled to receive a bonus and it was agreed by the board but it was

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all handled by a strange way because halfway through the whole

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discussion there was a piece of information that came out that the

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chairman of the bank had been offered a bonus of over �1 million

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and turned it down and then it looked strange because he turned

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his bonus down by Stephen Hester was still getting his bonus.

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I will tend to you now because what we have heard from two insiders is

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that they have real concerns about the wake salaries have developed,

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pay and remuneration has developed over the last decade. You bring a

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different perspective. Firstly, you were in politics as a Liberal

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Democrat. You are still in politics but you are still sitting at in a

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higher pay commission to look at whether people's salaries have just

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got out of balance with the rest of the economy. I am assuming you

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believe the simple answer is yes. They clearly have got out of

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balance. The problem as, they have got out of balance at a time when

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profits have fallen. In the case of the Royal Bank of Scotland and at

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Lloyds, you have state owned banks paying the type of salaries that

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you would only expect to get at the bank was paying well. We are having

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a difficult time in Parliament, cutting the benefits of poor people.

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One of the reasons this is happening is to get finances back

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in shape. One of the reasons they are out of shape is because we are

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bailing out banks. It is not surprising there is so much public

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anger about it and that is why there is so much political pressure.

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So you are saying that if the banks were doing well, you would not have

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a problem with a bank paying up to �8 million to its chief executive?

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I would have less of a problem. So when you talked not so long ago

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about obscene differentials between the ratio of the top directors'

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Kenning to the average wages of a retail banker, and called it

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obscene, I am puzzled as to why you are using their language if you do

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not have a problem? I do not have a problem with the

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successful anybody earning a significant amount of money. What

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is happening with the top executives in the United Kingdom is

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the direct of increase of their pay has just gone out of kilter with

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what has been happening to salaries elsewhere.

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But as Nicholas said, they are competing in a global market place

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and going by the American raids, they have to compete?

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Most people do not have to compete. Most people and the current market

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of financial services are not in a position where they can pick and

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choose jobs around the world. There may be at but only a very few. What

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we have come to the conclusion is that there are several problems. It

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is difficult to understand what people are getting paid at the top.

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There are various types of pay - basic pay, short-term bonus and

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long-term bonus. So we are suggesting it should be easier to

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look at what people are getting paid.

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Total transparency. It me put it at Nicola. You are famous for being

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successful and having huge pay packets. You do not work for a

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nationalised bank. But if you are talking about transparency in the

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central of London, have you always told people what you have earned?

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I think it was pretty transparent in the past. You had your paid

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salary, you paid bonus and your long-term equity plan.

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So what was your biggest earning? I had never earned more than �2

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million per year but a fire had accounted for extra plants -- if I

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had accounted for extra bonuses that I would have got if I had

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stayed, it may have been bigger. The minute you walk out of a job,

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you walk away from certain long- term bonuses.

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You did they use the phrase only 2 million.

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Well, compared to people who would be earning $50 million.

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But you'd have expressed concern about the way financial and City

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salaries have gone. You talked about obscene differentials. I dare

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say that �2 million was a heck of a lot more than the receptionist at

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your business. What to you are an obscene differential?

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But in that particular instance, I was the chief executive and I had

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built a sizable business. The two jobs when I was paid mots, one I

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turned around with a team of people a big division of a bank which was

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in dire straits and we created a huge amount of shareholder value so

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I think that was justifiable. The second time was when I set

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something up from scratch and build shareholder value. So I think it is

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a question of what other shareholders getting and what are

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the employees getting and I do not think you can make comparisons

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because in every single business, there will be a huge difference

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between the CEO and the secretary. I think the comparison is

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irrelevant. The Cam, you were chairman of

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Lazards International for a long time but you are also are committed

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to question. You have recently talked very interestingly about the

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way that big business and financial institutions have to adopt a new

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way of thinking, not just about remuneration but our whole series

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of issues in which they do business. What do you mean by that and how

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does your morality and your Christian world-view play into what

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do you think business must now do? I think the first thing is, we have

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to discover a way of having a discussion about using the word

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morality. It is diffic is diffic. We do not like using the word right

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or wrong. A whole grammar of the discussion of right and wrong has

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to be recovered. One of the initiatives we are working on his

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connecting the finance world and the ethical world so that they can

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be a dialogue. It may give you an example...

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Before we go further I want you to reflect on what you have heard. We

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have taught already about the differentials between those at the

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top and the bottom. When you talk about morality, is it in any way

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immoral in your views that the average differential between the

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CEO of a company and the average worker inside a company is about a

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multiple of a hundred and 20. Is There is a gap that is too large,

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that is Claire. It is not just in financial sectors. It is a moral

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issue, it is plain wrong? It is wrong that there is such a

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disparity. The example I was going to give, that was bandied about

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Martin Davos in the past week, the 440 largest banners in America, and

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the equivalent of 150 million people at the bottom end of the

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pile. What has happened in the last ten years, in this easy money

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period, the Gatt between those who have and have not has got wider.

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That is a moral issue. -- the gap. What is capitalism? Moral markets,

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what has it delivered for the ordinary person? That is the

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burning issue we have to address. What we have to consider, how to

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change things. If you believe they need to be changed, you have said

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if they are not changed you can see real trouble looming for the

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world's catalyst economies, does change come from government? --

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capitalist. No, we do not live in a communist state. Democracy runs

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through companies. That is why we have shareholder meetings and

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resolutions that shareholders vote on. It is up to the shareholders

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and the directors, who are very -- there to protect the interests of

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the shareholders. I think we are reliant on them. The government

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France the roles of the game. In the UK the government is

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considering giving shareholders a much stronger veto power. Frankly,

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that does not sound like it is going to work. 75% will be able to

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abstain. Make it more draconian. What about the government saying

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employees, shop floor workers should be represented on boards?

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They could be. Certainly with pension funds we have

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representation. A few years ago it was decided that there should be

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more employees representation of the pension fund. That worked

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perfectly well. I am not sure it is going to make a huge difference. We

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have already had numerous codes. We have had all sorts of things.

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Commissions of inquiry is... It was made very clear what should be

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happening, but no-one has taken much notice. We should rattle the

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cage, please take more notice. Sceptics might say, the message is

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that businesses need to take on, a sense of social responsibility,

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that message has been out there for years. The difference is the

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extraordinary anger that is felt everywhere in the world. Not just

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in this country. It is at the disparity that has grown. Every

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business person that is worth his salt has tuned into trying to deal

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with a worldwide phenomenon. Globalisation has brought us closer

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together. One of the issues that have to be dealt with is how to

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educate a new generation into the virtues of conscience as opposed to

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contract? You can have a number of regulations. When banks are still

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paying, you have talked about the lack of performance relationship,

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they are still paying their top executives many millions of pounds,

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I am not convinced at all that business leaders understand this

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new language. It takes time. This language is very difficult to bring

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about. The community is expressing a view, yes government makes it

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known, but also the boards of most companies that one is talking to at

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the moment are aware of the issues. We are still working in a

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competitive market. Let's talk about the politics. I said maybe

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the government has a larger role to play, but you are a politician, you

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have talked about needing to establish a new level of fairness

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in the business world. Let's talk taxation. Is it time for those who

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have the most to face punitive levels of taxation? I do not think

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that is the sensible way forward. The roles have got to change to

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make it easier for the system to work as it is supposed to do.

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Shareholders have to be given more power. People who are individual

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shareholders or have a stake in a pension fund, need to be using

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people power. The equivalent needs to be working here. Relying on

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shareholders is not going to work. Shareholdings are divvied up across

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the pension funds, there is no way relying on shareholdings is going

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to deliver this brave new capitalism that you have talked

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about. I do not agree with that. A huge proportion of shares are

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traded directly by individuals. People who have accounts at the

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bank's, have said, we are going to choose for -- a bank that operates

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in an ethical way. If that happened you would find a shift in behaviour.

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That might be a more effective way of pure consumer power putting

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pressure on management. That might sound a little bit technical.

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President Obama is using language that is not technical at all. He is

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talking about the Warren Buffett test. If a billionaire is paying

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less than your workers in tax, than your secretary or low-level worker,

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to Barack Obama that smells of deep unfairness. The system has to

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change to fix that. I believe it does in the United States. Capital-

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gains tax... We have a 50% tax rate. The situation about tax at the top

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end here is very different. Capital-gains tax is 28%. I do not

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actually think that by ratcheting taxes up a bit more you are

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suddenly going to get people paid less. When we put a tax on bonuses,

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the banks paid the bonus and the tax. We want to try and change

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behaviour of. President Obama talks, his rhetoric is wonderful. The

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delivery is not there. We are wondering with how you can change

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behaviour. -- grappling with how the star a few months ago you when

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to talk to the occupied protesters in the city of London outside St

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Paul's Cathedral. Given everything I have heard from you today, had

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you believe you will convince those people in those sort of protest

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movements that you are serious about changing capitalism? The way

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to do it is to show there is a lively and engaged debate on the

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issue. Debate is fine, but in reality, everything we have

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discussed about what the banks is going, suggests talk is cheap.

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have got to start. It is going to be very difficult to take the right

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sort of action. Of course we have got to have action taken by the

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boards of all of the companies, whether they are industrial or

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financial companies to review renumeration and reward those who

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create well. This is a very important moral imperative, to

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create Wells and create jobs. If we can manage to move jobs to the

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front of the agenda and show there is a market economy that is

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delivering jobs to young people in particular. I think this would have

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achieved it, even though it is a narrow field. What will capitalism

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look like in ten years' time? Will it be fundamentally different?

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may well look fundamentally different. It is very difficult to

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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

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is needed to change these things. We have seen a period of excess,

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now we are going through a period of austerity. A lot of countries

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are having to pay down debt. That is affecting individuals as well as

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countries. These sorts of packages that we have been seeing will

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reduce in size and people will eventually listen. Which is why I

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am not in favour of government taking action. I think it will take

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-- happen on its own. Do you believe that? I think it will need

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the odd nudge or two. I also think it is going to require a movement

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of individuals to put pressure on people... Just a final thought. We

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have talked about morality, top pay, the word we have not used his greed.

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Is the era of greed going to have to end? It is going to have to end

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in the way we have known it. Otherwise the differentials would

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just keep getting worse. That has got to stop. I think it does have

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to end. It has been a very difficult period for the world.

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