Leading article: Ethical capitalism must start with shareholders

The Prime Minister will achieve little by appealing to executives themselves

Related Topics

Barely a day goes by at the moment without a politician laying claim to "ethical capitalism" and pronouncing on the measures needed to institute it. Notwithstanding the political jockeying, their efforts are to be welcomed. The financial crisis has exposed instabilities and injustices which are neither desirable nor sustainable. The problem is that the remedies being proposed are still tilting at the wrong target.

There is certainly no shortage of ideas. Ed Miliband thinks there is mileage in curbing hidden surcharges, cracking down on energy companies and tweaking company takeover rules. For Nick Clegg, the priority is employee ownership, as a mechanism for boosting social rather than purely commercial aims. Next week, Vince Cable, the Business Secretary, will set out reforms to control executive pay. All are ideas worthy of consideration and all may have a part to play. But, so far, they are tinkering, at best.

Yesterday, it was the Prime Minister's turn. In a speech larded with rhetoric about the Conservatives' unique role as the guardian of social responsibility, David Cameron set out his vision for a "better economy" that is "fair as well as free". He talked of a "popular capitalism" with wider economic participation, of tougher banking regulations, and of changes to tax rules. All well and good. But the looming furore over the pay of Stephen Hester, the chief executive of the Royal Bank of Scotland, will test his ideas to political destruction.

It is hard not to be outraged at Mr Hester's likely remuneration. Although the share price has dropped by more than a third, and the bank has cut thousands of jobs, the boss is in line for a bonus of around £1m on top of his £1.2m salary. Given that RBS is majority-owned by the taxpayer, surely here is Mr Cameron's opportunity to confound the sceptics and prove his commitment to a newly moral capitalist system?

The problem is that the job that Mr Hester was hired to do – to shrink a bloated, over-indebted behemoth down to a more manageable size – almost guarantees a falling stock price. And the task is a complex one, requiring expensive skills. Arguably, in cheaper, less competent hands, the banks' owners stand to lose a lot more. That is not, of course, to suggest that Mr Hester's astronomical pay should not be challenged. Far from it. But, in a culture of corporate excess, there is little the Prime Minister can do without further risks to taxpayers' money.

There's the rub. In practical terms, there is not much politicians can achieve by appealing to executives themselves. If the business leaders meeting at the World Economic Forum in Davos next week volunteered to scale back their remuneration, en masse, then perhaps there might be progress. But they are unlikely to do so, and Government cannot force it upon them.

There is, however, another route. While individual executives may be unable to change an unpalatable corporate culture, even at the behest of the Prime Minister, such issues do fall within the remit of companies' owners. If managers are overpaying themselves, or pursuing unduly aggressive, short-term strategies, it is up to shareholders to do something about it.

Mr Cameron has not missed the point entirely. He spoke yesterday about "empowering shareholders" and using the power of transparency to shame executives into restraint. But he is pitching at the wrong crowd, blinded by a Tory vision of plucky small businesses and individualist investors. Spreading participation in the economy more widely is a laudable aim. But the vast majority of Britain's shares are held by institutional investors that are either too idle or too much part of the same corporate culture to wield their enormous power as they might. If Britain's politicians are serious about ethical capitalism, it is here that they should be focusing their attention.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Pharmaceutical Computer System Validation Specialist

£300 - £350 Per Day: Clearwater People Solutions Ltd: Pharmaceutical Computer ...

High Level Teaching Assistant (HTLA)

£70 - £90 per day: Randstad Education Birmingham: Higher Level Teaching Assist...

Teaching Assistant

£50 - £80 per day: Randstad Education Birmingham: Randstad Education is the UK...

Senior Java Developer - API's / Webservices - XML, XSLT

£400 - £450 Per Day: Clearwater People Solutions Ltd: Our client is currently ...

Day In a Page

Read Next

i Editor's Letter: Take a moment to imagine you're Ed Miliband...

Oliver Duff Oliver Duff

Letters: No vote poses difficult questions – so why rush?

Independent Voices
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits