Friday 3 August 2012

Is the City changing?

There is a lot of thinking going on in the City of London. If you were to walk around the Square Mile and attend meetings at the various market groups, thinktanks and at Gresham College, you would be pleasantly surprised at what is being discussed. As well as ritualised complaints about victimisation on bonuses and regulation a new theme is starting to emerge, for a long time fledgling but one that is now starting to fly above the other topics – it is the issue of ethics and values. Last year Charles Moore questioned capitalism and now some of the bankers themselves are viewing it in a new light. Whatever next?
In March, Stephen Green, former chair of HSBC and now minister for trade and investment gave a Gresham Colleglecture entitled ‘Values and Value’ and suggested that capitalism was still ‘on trial’. In its defence he suggested that profitability and social responsibility weren’t mutually exclusive and neither were shareholder value and ethical values in conflict. He commented on the truism that there is a new generation emerging from university that believes that it is right to question the corporate ethics of the organisation they may work for.
A week earlier Merrill Lynch hosted the spring conference for the City’s Long Finance thinktank which discussed ‘into the folly of value – reforming sustainable finance’. The keynote speaker, economist and former Bank of England committee member Professor Charles Goodhart,  spoke of the pro-cyclical nature of regulation. He noted that after the South Sea Bubble crisis in 1711 it was decided that such a crash should never be allowed to happen again so they regulated and outlawed limited liability companies (which remained broadly banned until 1844).
Goodhart noted that consensus about the current crisis was centring on it being a failure of regulation and supervision and the reaction was for more regulation. But he argued that regulation is not so important because at present the market has no appetite for risk or lending. He noted a tendency both to regulate and deregulate at the wrong times: after the 1929 crash, the response in the US was the introduction of the Glass-Steagall Act which separated out retail banking from investment banking. By 1999 it was decided that the act had been inhibiting growth so it was dismantled.
For the future, Goodhart suggested a gradual implementation of regulation as the market grows combined with changes in governance to transfer it from managers and shareholders to stakeholders. He suggested that we should rely on governance for the future as regulation is, as demonstrated, pro-cyclical particularly for the larger banks. To me it follows that the larger a bank becomes the more socially responsible and accountable it needs to become to the community at large because, as the last crisis showed, it was the community that ultimately stood surety for them.
Since then we have had the Libor crisis and, if ever there was a crisis about ethics and values, then this must be it. The irony is that Barclays was founded as a Quaker bank but Bob Diamond when asked by Treasury select committee member John Mann did not know what the founding ethical principles of the bank were (honesty, integrity and plain dealing).  At the recent Tomorrow’s Finance conference David Pitt-Watson in part called for a return to the principles of Alfred Marshall – one of the founders of economics – which was that success came through ‘honesty and uprightness’. Ethics and values are not a new or quaint idea, or a product of wishful thinking, but were what our financial system was original built from. The City is starting to recall that.
But it is hard to say how long this reflective mood will last. The jury is still out, as the debate about what it is that the finance does, how it does it and why it does it continues. The lead argument is that shareholder value and social ethics and values, and profit and corporate social responsibility, can be married together in a combination of both regulations and ethics. Perhaps good regulation and accountable corporate governance can be the glue that marries these partners together and the offspring will be a more prosperous and fairer society, and a financial system that works for the benefit of us all.
Philip Ross

Speaking for small business

Speaking for small business - From Progressonline
by Parry Mitchell

Baroness Jan Royall, the leader of the opposition in the House of Lords, emailed me recently asking whether I could come and join her for a five minute chat.  When the leader summons you, you are prepared for the worst, but I was very pleasantly surprised.  Jan asked me whether I’d like to take on a front bench position shadowing  the government’s BIS department.
I asked whether I could consider it over the weekend , but in truth my mind was made up in two nanoseconds.
For nearly 40 years I had been in the information technology industry, most of it as a serial entrepreneur.  I had created, developed and eventually sold three international IT service companies. I know what it’s like to build a company from a couple of people sitting round a table to eventually becoming a global player.  My expertise comes from the coal face (well not quite the coal face!).
I was ennobled in 2000.  If you are an ex-MP or have been involved in any form of politics beforehand fitting into the House of Lords is seamless, but if you come from a non-political background it’s tough.  I’ve been there over 12 years and now I really know the place well, though I must admit I struggle remembering the names of Cameron’s recent intake.
So why did I take this job as shadow business minister?  Not for the salary – there isn’t any.  And not for the power – in opposition you are impotent.  And certainly not for ambition – I am way too old for that.  I took it because I really do have something to say on a subject I know very well.
My brief is SMEs and my boss is Chuck Umanna – he is less than half my age, but he is terrific and knows his subject.  I am looking forward to working with him and the shadow BIS team.
You have only to look at the statistics to see that unemployment in the UK comes from job reductions in the large company sector and from the public sector, whereas small and medium companies are more than holding their own.  You only have to look at exports to also see that SMEs are doing well and its the large company sector that is struggling.  In a depressed economy it is the SMEs who are nimble and stepping up to the challenge.  But we should be doing more to encourage them.
I refuse to accept that Labour should be anything other than the party of business – we mustn’t let the Tories claim business as their sole preserve.  It is SMEs that will lead the recovery and it is SMEs which will provide new employment – my brief will be to contribute to the front bench BIS team’s thinking and policy making as well as to hold the government to account.
Just a word about the banks.  I speak to many SMEs and despite quantitative easing and despite all the programmes this coalition government have announced, precious little finance is getting through from the banks to the SMEs.  There are many companies out there who have battled through this recession, cut costs, restructured their business models and are now well on the way to recovery. They have done everything right in an economic crisis they did not create, but the banks still treat them like lepers.
The banks failed. The nation bailed them out. It’s their job to perform and we should be holding their feet to the fire.
Parry Mitchell is a entrepreneur, member of the House of Lords and the newest addition to the shadow BIS team