One of the most eye-catching headlines of the first week back after Christmas was ‘Fat Cat Thursday’, based on a study by the Chartered Institute of Personnel and Development and the High Pay Centre showing that by 4 January the average FTSE100 Chief Executive had earned the typical annual wage of £28,758. Cue lots of outrage about noses in the trough and inadequate managers on the make. Yet again post-crash capitalism took a pasting, blamed as the cause of rising inequality and unfairness.
Clearly the fact that there are big disparities in pay and wealth is a major political and social issue. It makes a lot of people very angry. But it is in no way a new phenomenon. At the same time as newspapers were splashing on the fat cat story, cinema-goers could pop along to see the new movie All the Money in the World, which focuses on the Getty family in the 1970s, and on their riches. Travel a little further back in time and you will find the Astors and the Rockefellers and the Carnegies. Over the holidays I watched Ken Burns’s portrait of the Roosevelts, whose careers were based on being cross about pay inequality. When it comes to fat cats there is not much new under the sun.
Inequality has been with us for a very long time, to a greater or lesser extent, but always there. Every now and then plutocrats start to get a bad press – we are in such a phase now. Damning coverage in the media leads to demands for change, politicians get involved, regulations are brought forth, things improve a little and it all calms down. The problem will recur a few years later, though.
A key reason for this cycle is that the people who are meant to speak up for businesses periodically seem to forget that their job is not just to defend or promote their own organisation: a major responsibility has to be to ensure that capitalism itself is viewed positively. It is harder to defend an individual fat cat if people believe that the system as a whole is unfair and corrupt. It is much easier to promote business leaders with passion and vision if it is accepted that they operate in a framework which allows anyone with good ideas and a strong work ethic to make it to the top, and that what they do is good for the country as a whole. What is good for individual executives is good for their companies – and so it is good for every single business if business as a whole is respected and admired, or at least understood.
The job of standing up for commerce and enterprise is to an extent the role of each business leader, but even more so for the professional bodies and trade associations who speak for industries in general. Right now, with some honourable exceptions, these organisations seem to be experiencing a confidence crisis, and have withdrawn from the fight to advocate for capitalism. Instead they focus on only on issues which, even when they are important, like governance or corporate responsibility, are secondary when business itself is being criticised. This is hugely damaging. And it is completely unnecessary.
Take high levels of executive pay. Of itself this doesn’t seem to me to be a big issue. The public in general seems very happy that some people make a lot of money, whether it is Kim Kardashian or Philippe Coutinho – or Richard Branson, Warren Buffett or Bill Gates. In fact these people are widely admired. Their fortunes are considered to be deserved. The issue comes when rewards don’t seem to be paid on merit, and the reasons for paying large salaries are not understood. And right now there is limited understanding of how the market operates and what executives do to earn their generous rewards.
So business groups should be explaining robustly and repeatedly how enterprise works, and how businesses create wealth, innovation, jobs, skills and so on. They should make clear that successful companies need strong leaders. In the UK and elsewhere capitalism is unloved and not well understood, but those who claim to be representatives of business shouldn’t just accept that and give up. Time for them to do their duty, to stand up and to speak out.