Is profit a dirty word and if so, what can the pensions industry do about it?
Without profitable investments the pension fund model doesn’t work, and there is no solution the ageing population crisis. That said, the financial industry is facing a catastrophic lack of trust from the general population.
Can the pensions industry overcome this trust deficit, or is profit now a dirty word? This was the question asked of a panel of experts at the NAPF Investment conference 2015.
The panel was made up of Frances O’Grady, general secretary of the TUC, Lady Susan Rice CBE, president of the SCDI and Simon Walker, director general of the IoD
They were there to tackle the issue of what, if anything, the pensions industry can do to re-engage the public and rebuild trust in business.
Walker kicked off the session, arguing that profit shouldn’t be a dirty word, because it is the cornerstone of economic growth, but that it should not be the sole focus of industry. “Profit is really going to matter, because that’s where all the money that pays for health, education and everything else the government ends up providing actually comes from.”
Rice agreed. “It think that profit was never meant to be a dirty word, it’s people who make it that”.
O’Grady said we need to draw a distinction between profits and profiteering. “If you look at the rail industry, we were sold privatisation on the basis that it would generate more investment and a better deal for passengers.
“People feel, quite rightly in my view, that actually it turns out that the taxpayer is providing the lion’s share of investment, companies are doing quite nicely and passengers are being stung.”
Answering a quick poll, 84% of the NAPF audience agreedthat the root cause of mistrust was caused by excessive pay, rather than excessive profit.
O’Grady felt that this was at the root of the problem. “Since 2010 we’ve seen pay at the top soar by 26% and pay for ordinary workers on average cut in real terms by over 8%.”
This lack of wage growth has wider implications for the economy as well, as it slows spending and leaves a big black hole in returns to Exchequer.
She argued that the problem is measurably worse than it has been in the past, and pointed to growing inequality as the pay divide increases.
Walker disagreed. “The time that inequality in this country was at its least, when the Gini coefficient was at its lowest, was in the late 1970s, when this country was a complete economic basket case.”
Pay disparity is not the whole story. O’Grady suggested that it’s the stewardship of companies and the primacy of shareholders above all other stakeholders that cause the breakdown of trust.
Walker argued that companies are doing their best. “I think the corporate model tries to get it right. It doesn’t always work and at the moment there is a need to say to awful lot of highly paid executives in big companies, “look you’re paying yourself much too much”.
He suggested that the shareholders themselves need to do more to influence company stewardship. “Where the hell were the shareholders?… If they were putting pressure on and asking the questions that they ought to be, I think the system would work.”
O’Grady argued that this way of thinking is just another example of big businesses making excuses and that, in fact, in the UK employees do not have nearly enough power to influence the way a company is run. “The majority of EU member states now provide for some kind of representation of workers on the board, why are British workers so different?”
Wrapping up the session Rice said: “At the end of the day you need trust and you gain trust by seeing the longer term.”
Walker, concluded: “Ultimately viability of an organisation is the most important factor.”