Theresa May promised to tackle greedy bosses – instead she’s helping them
Witty Robin Hood financial tax campaigners were demonstrating outside HSBC’s AGM on Friday. As shareholders queued outside the Westminster venue, protesters dressed as pin-striped fat cats laundered fake £50 notes in a washing-up bowl with giant scrubbing brushes, a visual reminder of what the bank got up to.
HSBC has been fined £1.2bn for laundering Mexican drug money, with its annual accounts setting aside £773m to cover ongoing tax investigations. PIRC, the pensions and investments research consultants who rate company performance on behalf of shareholders, noted HSBC’s 62% drop in profits last year, and the bank has closed 62 UK branches and shifted 1,000 jobs to Paris due to Brexit. The Financial Conduct Authority rates HSBC as the second-worst bank for customer complaints about banking, credit cards and mortgages.
Undeterred, HSBC’s chief executive, Stuart Gulliver, is up for a pay rise to bring him to nearly £8m a year. Gulliver, readers may recall, was exposed in the Guardian in 2015 for having sheltered millions of his own money in a Swiss account through a Panamanian company. Although his actions were legal, he was registered as domiciled in Hong Kong for tax purposes, despite living and working in the UK. Leaked documents appeared to show that the Swiss private bank operated by HSBC was complicit in tax evasion and aggressive tax avoidance, doling out bricks of cash to clients, and providing banking services to criminals, drug smugglers and friends and families of dictators.
PIRC recommended that shareholders should vote against HSBC’s “highly excessive” executive pay, with its ratio of 102:1 from the top to average employees. It said the bank’s chair, Douglas Flint, had “failed in his responsibilities” and his position was “untenable”. Flint warned of the “threat of populism impacting on policy choices in upcoming European elections”. Yes, indeed. But did his bank’s actions inflame this populism?
Company AGMs are strange beasts. Once a year directors sit on a high platform so ordinary punters can watch them explain why they are worth millions. Some small shareholders only turn up for the free refreshments. There are vigorous activists, well-known faces nit-picking through annual reports to ask tricky questions. At HSBC, John Farmer is their supremo, pointing at page 166 of the annual report and ending rhetorically: “In eight years of your chairmanship, why haven’t you done better?” A familiar, eccentric Marxist harangues ineffectually until the audience sighs. Others are HSBC groupies, giving oily thanks to the platform. There are campaign groups such as ShareAction, a charity trying to use shareholding to “unlock its potential to be a force for good”, especially on the environment.
But what’s painfully clear is that nothing that happens in this packed hall makes a scrap of difference to anything. This is the comical charade of governance, a half day’s embarrassment. When it comes to voting on top executives’ remuneration, those in the room press little buttons, then up on the screen comes the total of all institutional shareholders: result – 8,885,701,000 votes, or 96%, gifting Gulliver his £8m. It was never in doubt.
After the 2008-09 crash, a brief fluttering of public indignation sparked Occupy and UK Uncut’s protests against corporate tax dodgers at Top Shop, Barclays, Starbucks and Boots. AGMs of 2012 were hailed as a “shareholder spring” though almost all votes against obscene pay failed, with barely a ripple of fear caused to boardrooms.
The High Pay Centre reports executive pay still rising; CEOs in the FTSE 100 earn 130 times the average (not lowest) salary of their employees. Stefan Stern, the centre’s director, says: “Twenty years ago it was 45 to one.” He is waiting to see whether in her election manifesto, Theresa May will turn out to have meant what she said in her “sacred text”, her single speech pitching for the leadership. She said back then that though the FTSE traded at the same level as 18 years ago, “executive pay has almost trebled” with “an irrational, unhealthy and growing gap” between bosses and workers. She pledged “to make shareholders’ votes on pay not just advisory but binding” with full transparency of “the ratio between the CEO’s pay and the average company worker’s pay”. Will that go the way of her promise to put workers on boards – “Because we are the party of workers” – an idea hastily abandoned once she was inside No 10?
The Chartered Institute of Personnel and Development (CIPD) is waiting too, to see if she follows through on executive pay and corporate governance. Its director, Peter Cheese, would do away with remuneration committees that inflate boardroom pay – as do executive search agencies rewarded with a percentage of an executive’s pay rate. He says “there is no evidence in behavioural science” that soaring pay delivers better management. Top pay linked to share price encourages artificial short-term price-raising tricks. Worse, CIPD research shows excessive pay does damage. He says that “70% of employees think CEO pay is too high, and 60% say it demotivates them at work”.
Nothing in the government’s election campaign so far suggests remedies for the great social dysfunctions May listed in her first speech. Top pay in itself is only an emblem of a deeper malaise, with the Institute for Fiscal Studies warning that May’s regime is set to cause inequality to rise as steeply as it did under Margaret Thatcher, with wages stagnant or falling, benefits cut and public sector pay dropping by 12%.
Labour’s pledge to peg the public sector to a pay ratio of 20:1 top to average would affect few: for all the fuss the Daily Mail makes, there are very few high-paid public officials, none anywhere near FTSE CEOs. But Labour’s plan for a pay ratio cap on all the Capita, Sodexo and Virgin-type contractors certainly would shake things up, stopping earnings rising above about £350,000. ComRes finds a hefty 57% public support for capping high pay, with only 30% against. The best Labour can hope to do is taunt May with her own words, challenge her with policies she once pretended to espouse. As with Ed Miliband’s price freeze on energy companies, expect to see popular Labour policies gain currency until they are eventually adopted by the Tories. Meanwhile, Gulliver is off to pastures new that will no doubt be just as lush and verdant as HSBC’s.