LEADING ARTICLE : Better value in the boardroom

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The Independent Online
Today, Cedric Brown retires as chief executive of British Gas. It is a departure to be celebrated by all who care for the long-term health of the private enterprise system. British Gas shareholders, employees and consumers have not, however, seen the last of Mr Brown. He is being retained on pounds 120,000 a year as a "consultant". And after that somebody will be paying Mr Brown a fat pension. At least the Government has not (yet) dared to give him the knighthood which corporate chieftains of his ilk have come to expect.

Cedric Brown deserves contumely less for his greed than for his cack- handed failure to explain himself. It was always unfair to single him out. He is in bad company. Last year, according to the National Management Salary Survey, directors of British companies paid themselves 9 per cent more in earnings. Did corporate performance really increase by a proportion three times the rate of inflation and four times the current rate of growth in the economy?

It didn't. There is a structural fault in the way business operates, which is the lack of a convincing relationship between what top managers get and what they personally produce. How much value chairmen and chief executives add cannot be dismissed as a technical issue, nor ought it be confined to the business pages. Boardroom performance affects not only the income and livelihood of us all, it cuts through politics to the very foundations of our system. Part of that elusive feelgood factor, the absence of which is so galling to the Tory government, has to do with public confidence in the overall fairness of the economic system. There is no workable alternative to the international capitalism which, setting aside the peculiar political economy of China, is the only viable economic system we have. That fact should not stop people making judgements about its equity and its efficiency.

In recent years, improved performance has been the watchword across both public and private sectors. We owe Baroness Thatcher our sharper sense of the necessity of linking reward and output, action and appraisal. But the connection has to be made at all organisational levels, high as well as low. There is no pretending it is easy. Is a police officer to be rated on the number of arrests made or the (much more difficult to measure) crime his or her patrols avert? Is Sir Alastair Morton to be judged on the fact the Channel tunnel got built or the fact that as a business proposition it has turned out to be a disaster. However difficult, some effort must be made to assess directors' competence. It is not the business of shareholders and creditors alone; the public too has a role.

The Government has, typically, refused to think for itself about how companies run. Sir Adrian Cadbury's study of corporate governance was a freelance effort which lacked intellectual weight and fell into political no-man's-land. The Greenbury inquiry turned out to be an expedient for beleaguered ministers rather than a courageous grab at the nettle. The problem is not that executives get substantial salaries, or perks, or pensions. Where they are earned, they are deserved. They only become unacceptable when they are justified as the going rate - a concept those selfsame directors deem anachronistic and damaging when applied to employees.

The public understands that economic growth requires that old jobs are shed while new ones - in other parts of the country, demanding different skills - are created. But it is hard for them to accept promiscuous increases in boardroom pay when they are not accompanied by tangible signs of corporate success, which must eventually include measures of employment and consumer benefit. The remedy only partly lies in the hands of law makers. It is for the profit makers and profit takers to see that they shoulder their wider responsibility for the health of our economy.

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