My Lords, I, too, thank my noble friend for and congratulate him on introducing the Bill. I thank him for all his hard work in taking a Bill through your Lordships' House. I congratulate him on his timely and important initiative.
I support the Bill, and I would not be surprised if Richard Lambert, the director-general of the CBI, also supported it. At a dinner on
Noble Lords will remember that when we debated the Companies Act 2006, we were very concerned about this and about the narrow definition of shareholder value. We were anxious that directors should be obliged to act equitably between all company stakeholders. Indeed, directors are encouraged to report on this in the business review required in Section 417. There is absolutely nothing to stop companies voluntarily putting this ratio in their annual report; indeed, the Companies Act 2006 encourages it. I am sure that some noble Lords will point this out and perhaps, with a few words about unnecessary red tape, will conclude that the Bill is unnecessary. In normal times, they could be right, but these are not normal times. These are times of crisis, and crises demand change. As Mr Lambert reminded us, part of this crisis is excess, and part of that excess is excessive pay.
Quite rightly, my noble friend in his Bill wants to be part of this change. This change is all around us. The Government themselves are speaking of a new era of caring capitalism, as are the Opposition. What common economic and business values were subscribed to by the world leaders at the G20 conference in London? They were fairness and integrity—the fairness looked for by my noble friend Lord Puttnam's dad.
What does this mean? It means that business has to move away from a code of conduct towards a code of ethics. It means moving from the strict letter of the law to the spirit of the law—moves which are perhaps both subtle and confusing. In these circumstances, Governments have to provide signposts, showing the way from what is excessive to what is proportionate and showing the way to what is fair. Unless these signposts are provided, all these fine ideas will just remain as words and rhetoric unmatched by action. That is why, at this time of crisis, a nudge and a wink are not sufficient. We need my noble friend's Bill. It may not deal with the whole issue of integrity, but it points the way. It is a small signpost indicating what is fair, what is right and what is proportionate. It is an indicator of the right balance between effort and reward. The public are in the mood for this.
It may well be that the Minister and opponents of this Bill are concerned that all this talk about proportionality and fairness may inhibit the freewheeling market that brings us the innovation, the enterprise, the new products and services and the technological advances which expand our economy and raise our standard of living. I can put noble Lords' minds to rest. Of course, you can always cherry-pick to prove that freewheeling capitalism has created economic value which benefits us all. But as we have seen the rise in the ratio of pay, so we have seen a rise in the creation of paper wealth, the kind of wealth that my noble friend Lord Gavron spoke of. It is wealth created by playing the markets, instead of a real rise in wealth by solving the world's problems.
Research over the past 15 years demonstrates that innovation and progress are not just a matter of pay. The noble Lord, Lord Taverne, gave us the details. He explained that it is also a matter of the culture of work and of having good and serviceable institutions in place, which enable people's aspirations, expectations and discretion to be used. My noble friend Lord Giddens told us that these things are carefully studied. Since the mid-1990s, we have witnessed in Britain the paradox of a rising pay ratio matched by declining employee discretion to be innovative—to take financial risks, yes, but to be truly innovative, no.
That brings me to corporate governance, which will have to be improved. My noble friend's Bill helps with this by getting away from some of the box-ticking on pay. The Bill is an institutional reminder that workers and shareholders can put questions relating to the salary of directors on to the agenda, not only at shareholders' meetings but at workplace meetings. There should be a signpost in the company's annual report, which is perhaps symbolic, but nevertheless is an indicator of fairness within the company.
I support the Bill, because the time is right. It reflects the current mood of the public and of business to curb excess. The direction is right, because it points towards a more caring and innovative economy—the kind of economy that the Government are speaking about and that reflects Labour's values. The Bill is modest and proportionate. It is a small step towards the fairness subscribed to by the G20. It improves corporate governance. My noble friend's Bill is the direction in which we have to travel.