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