KETTLE, YOURS SINCERELY, POT

Nick Clegg, the UK’s Deputy Prime Minister, is mad.  He’s so mad in fact that he’s threatening to get tough and take action, just as soon as the Christmas dinner and New Year celebrations are out of the way.  The source of his madness is the ‘unjustified and irresponsible’ pay awards that some bosses in the private sector are getting, especially those whose businesses aren’t doing so well in the global economic downturn.

There’s no doubt that executive pay has got out of hand and has unwelcome impacts for everyone except the recipients.  But my issue with Mr Clegg’s protestations is twofold: firstly, it’s a matter between shareholders and the businesses they invest their money in and really none of his; and secondly that it’s a case of the kettle calling the pot black.

What happens in the private sector, provided it breaks no laws and takes place between consenting adults, is a matter between the investor and the business they’re investing in.  Investors risk their cash, or the cash that others have given them to look after on their behalf, in businesses they believe will provide an acceptable return relative to risk.  In most cases, investors chose sectors they understand or think show promise.  Sometimes they invest in a management team that gives them that same warm, fuzzy feeling.

When Northern Rock threatened to turn to sand a few years ago, the then Labour Government wrote a check for £1.4 billion and effectively nationalised the bank.  Just last month, the coalition Government sold the ‘good part’ of the bank to Richard Branson’s Virgin Money for £747 million with the hope of a little more over time.  The ‘bad part’ of the bank remains, unsurprisingly, with the taxpayer who is nursing a loss so far of over £500 million.

What’s more, it now looks like much of the cash used to fund the deal came from Northern Rock’s own cash reserves. This is the same way the Glazer family purchased Manchester United Football Club a few years ago and saddled it with debt.  I trust that Clegg has already ‘got tough’ with whomever was responsible for this stunning piece of business?  Who? George Osborne, his cabinet colleague?  Really?

Where Clegg should maybe have a stronger say is in the board compensation in those banks where the UK Government remains a major shareholder, like Royal Bank of Scotland and Lloyds Banking Group.

The UK Government currently holds 82% of RBS in a trust fund for UK taxpayers after it injected an emergency £65 billion, or 50p per share, to save the bank from doing a Lehman Brothers in 2009. Each of those shares today is worth 21p, making the capital loss for the taxpayer today about £35 billion.  The bank’s CEO’s remuneration in the last financial year, agreed presumably by UK Financial Investments Limited, was £7.7 million.

The UK Government reached a similar bailout agreement with Lloyds Banking Group in 2009, investing £17.43 billion of taxpayers’ funds at an average of 63.1p per share. This investment gave us a 41% shareholding in the bank.  Lloyds Bank shares are available to buy on the open market today for 25.4p each.  I make that a further capital loss of around £10 billion.

The current CEO of the Lloyds Banking Group is on long-term sick leave, while the previous incumbent continues to get paid an estimated £100,000 every month while he tends his geraniums.  Clegg in his current mood must be livid with the UKFI, which was set up by the government to ‘… manage these [public investments in UK bailed out banks] to create and protect value for the taxpayer as shareholder.’

So the Government’s record in managing investments in the private sector comes up a little short.  Maybe Mr Clegg should focus his ire here before taking on another crusade?

In truth, Clegg has enough to be getting on with in the public sector without worrying himself about the private world. Unemployment, particularly among the youth, is worryingly high.  The future of the Eurozone economy, and any ramifications for the UK could benefit from his attention, as could the dizzying levels of Government debt.

Clegg and Cameron are very quick to point out that the state of the nation was cast by the previous Government and that they’ve simply inherited the mother and father of all messes.  This would be ok, except that this argument ignores the fact that they were members of Her Majesty’s Official Opposition, paid by taxpayers to keep an eye on the actions of the previous Government and to hold them to account on our behalf.  That’s a payment for failure, something that Clegg rightly doesn’t support, they’re reluctant to discuss.

Of course running the country in the worst recession in several generations is complex, frustrating and difficult.  So too is running a business in the same environment.  But it’s no easier when people are busying themselves trying to do someone else’s job.

Clegg’s protestations are little more than a naked and cynical attempt to curry favour with voters while appeasing public service workers who are underwhelmed by the revised prospects for their old age.   The truth is Government has limited jurisdiction in Britain’s private sector boardrooms and that will be reflected in the impact that Clegg’s actions will have in terms of what executives get paid.

 

Picture:  Cabinet Office

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MORE HEAT THAN LIGHT

People with long-awaited hospital appointments tomorrow risk being disappointed.  Museum and library doors will remain firmly shut.  Bus and train engines in Northern Ireland, where public transport hasn’t yet been privatised, will stay cold while those that choose to drive will be able to park their cars where they usually can’t without fear of a parking ticket.  Travellers into and out of the UK will have the opportunity to admire at length the interior decoration of various departure and arrivals halls.

Tomorrow, up to two million public servants across the UK will go on strike because they fear for their old age. Those of us in the private sector donate up to half our earnings to fund public services. In return, all we ask is that they look after our health, the education of our children, the security of our borders and the various other functions that make society tick along nicely.  Tomorrow, we’ll be left wanting without a discount.  Many of us will incur alternative costs for childcare. The unions argue that it will cost the tax payer £500 million, or just 10 percent of the cost of the latest Royal wedding.

The public servants are staying home because the Government, they claim, has decided to redirect large chunks of their pension funds to already rich bankers, leaving them with an old age that is both deferred by a few years and carries the distinct whiff of beans and toast.

The government says the strikers are threatening an already moribund economy, and that it’s simply a case that public service pensions are no longer affordable.  We’re living longer than we were when public service pensions were invented 30 years ago and something has to give, they say and the current, unsustainable public service pension liability has to give.

Unlike my children who are supporting the strikers with enthusiasm, I find it a conundrum as to which side to side with.  This is not because of indecision on my behalf, an affliction I seldom suffer from, but because the public debate on the ‘ins’ and ‘outs’ of this particular kerfuffle have thrown up more heat than light.  The communications from both sides on what is a matter of significant public policy has been poor.  I would like to have formed an unequivocal view like the one enjoyed by my children who will spend the day watching television and playing computer games.

Neither side has made a compelling argument in their communications for their respective hard line positions.  The Government is holding firm and playing tough.  But they have depended too heavily in their messaging on the awful state of the economy, the inheritance left them by the former government and failing Eurocrats to make its argument.  Some data would have helped.  Her Majesty’s Opposition, funded by the feuding unions, has added little to the debate.

How many public pensioners do we support today and how many more are in the queue?  What’s the average annual pension for a public servant?  What’s the total annual cost of public sector pensions today and how much is it likely to increase in the future if no changes are taken now? Some of the public sector unions are simply squaring up for a fight, the government has told us.  Facts, please.

The unions are pinning the blame on greedy bankers who would struggle otherwise to survive on their meagre bonuses.  But the unions have been reticent on how much the average public service employee pays into their respective pension pots, or how much of these pots are actually being snaffled or asked to fund longer lives.  Please give us facts, not emotion.

Perhaps the absence of facts means they don’t embellish either’s case too strongly?

People are getting emotional, whichever side of the argument they favour, but few I’ve spoken to truly understand why.  It’s always the same in any argument that’s played out in public with a dearth of easily understood and simple facts.

They public sector employees say a promise has been broken.  Really?  My mobile provider, Orange as it turns out, has just decided to up my monthly bill on a long-term contract I signed less than three months ago. Why?  Because, as the small print points out, things change.

Similarly, the value of property upon which people could easily borrow cheaply only a few years ago, has fallen.  There’s a good reason for the health warnings on all financial investments. A pension is a financial investment.  We in the private sector came to terms with that many years ago.

Equally, the Government has failed to make a compelling case for the planned reduction in the public sector pension plan pay outs. Perhaps they assume they don’t need to, that those in the private sector who don’t enjoy a ‘gold plated pension’, whatever that is, will simply get on side.  But these are OUR public services. As taxpayers, we deserve to be better informed with better facts.

No communications battle has ever been won in the court of public opinion without the ammunition of clear and concise facts.  This argument is no different, not that the lack of facts will change my children’s allegiance tomorrow, one way or another.

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INVESTIGATED JOURNALISM

For many years, conventional wisdom held than only a fool would pick a fight with someone who bought ink by the barrel. Like the underworld gangster with a reputation for violence, the threat of enthusiastic press attention was enough to keep behaviour in check. Newspaper owners enjoyed tacit power with limited responsibility.  A small number of journalists and editors believed that same authority was transferrable directly to them.

Then, Glenn Mulcaire, a private investigator, was caught hacking the mobile phone voicemails of a number of public figures. He had been commissioned to do so by editorial staff at the News of the World.

At first, interest in the story was the preserve of media darlings and the chattering classes.  But then, Millie Dowler’s family were introduced to the plot and the story, and the public’s interest in it, changed.

At that stage, Rupert Murdoch sacrificed one of the English-speaking world’s largest selling tabloid newspapers and a number of his senior executives.  He even made a £3 million apology to the Dowler family.  But it was too late. The lid couldn’t be closed.  Fear of the all powerful newspaper proprietor seemed to evaporate in an instant.  The political response was as rapid as it was thorough, and a procession of actors, writers and slebs got in line near the TV cameras to express their unhappiness at press intrusion into their personal lives.

There is no question that what a handful of journalists did in the name of news gathering was both illegal and immoral. Their actions have been rightly and roundly condemned.  But I’ll forgive anyone for wondering whether the political reaction would have been as swift and comprehensive had the British press not found and feasted on the MP’s expenses scandal just a few short years earlier.  Similarly, the personalities (and their PR consultants) who had previously and happily conspired with the media to help amass vast fortunes, had their horror lists ready too.

The impact of the phone hacking scandal is likely to have far reaching repercussions for journalism in the future.  An industry already in alarming decline, journalism will spend the coming months redefining the rules for the future. One journalistic acquaintance even admitted to me this week that, was he to meet an attractive stranger in a bar who enquired how he made a living, he’d prefer to say he was a tax inspector.

The Leveson inquiry has been tasked with making recommendations on the future of press regulation and governance in the UK.  These recommendations, it says, will be ‘consistent with maintaining freedom of the press and ensuring the highest ethical and professional standards’. Whether Leveson ends up recommending a new code of voluntary practice with sharper teeth than the Press Complaints Committee, or the oversight of an external authority, remains to be seen.  But the independence of the press to hold public bodies and elected officials to account, and to shine a light on corruption and hypocrisy in politics, in business and society must be preserved at all costs.

The illegal actions of the illicit few do not represent, and should not undermine, the integrity of the many.   The many, including my single friend, should refuse to feel compromised.

Like journalism, public relations is an industry staffed by career professionals with a strong sense of ethics. But like journalism, it has been guilty of the occasional indiscretion, or ‘Jo Moore moment’ as we sometimes like to call them.

True and potentially damaging stories have been unearthed by reporters, only to be flatly denied by a member of the PR team and spiked.

The good half of a mixed story has been issued to a journalist writing to deadline in the hope that the less good half goes unnoticed, while negative stories are leaked to reporters on secondary titles so that the news can be dismissed as ‘old’ when the mainstream press catch up.

Journalism will search its soul over the coming months. It wouldn’t be a terrible idea if PRs did the same, quietly and privately, and eliminated any residual (and minority) bad practices in the process.

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