PDF version available for download (PDF help)

TUC MEMBER TRUSTEE NETWORK CONFERENCE

27 JUNE 2008

Speech by Brendan Barber

Thanks Jeannie for that introduction, and thanks for your hard work with the CWU and as a non-executive director on the Personal Accounts Delivery Agency and the Pensions Protection Fund.

And let me also thank James Purnell for participating in this event.

I want to talk today about your work in a changing economic environment; about how during this period of financial turbulence, the role of member nominated trustees is even more important; and about how there is a real need for engaged investment at what is a time of stock market uncertainty.

But before that, I want to put all of this in a bit of context.

And the obvious place to begin, of course, is the economy.

As the IMF suggested in the spring, we are now experiencing the worst financial crisis since the Great Depression of the 1930s.

And although the full effects of the credit crunch have yet to be felt, you don't have to look far to see evidence of deep-seated economic problems.

Rising inflation, stagnant wages and falling house prices all add up to a pretty volatile cocktail - made even more incendiary by the £1.4 trillion of debt propping up the British economy.

And our over-dependence on financial services has left us especially vulnerable to the contagion spreading from the United States.

Already, we've seen huge turbulence in the City - from the collapse of Northern Rock to the speculative run on HBOS shares, from the crisis at Bradford & Bingley to the Bank of England's £50 billion support for the banking sector.

That's why the TUC has been calling for a much more effective regulatory regime for banking and financial services industries - alongside tougher reporting requirements for private organisations.

For pension fund trustees - just as for fund managers and other investors - there can be no doubt that these are hugely challenging times.

But the past year has not all been doom and gloom.

While attention has inevitably and rightly focused on the economic downturn, further progress has been made towards a new pensions settlement here in the UK.

The last Pensions Bill set out plans to introduce new Personal Accounts, simple, low-cost schemes that will benefit between seven and ten million ordinary people who currently have no access to workplace pensions.

And the latest Pensions Bill now going through Parliament sets out the detail of implementation, and gives MPs the opportunity to discuss the principles that could underpin the investment strategy for Personal Accounts - but more on that in a little while.

So for all sorts of reasons, this is certainly a timely and important event: a chance for us to focus on some of the strategic issues that will define the contours of our work in the immediate future.

And I believe there are three main challenges facing us in the year ahead.

The first challenge is to really build on the success of member nominated trustees, who are already widely seen as playing a key role safeguarding pensions.

That means not just expanding our own network of over 1,000 MNTs - but making sure MNTs remain an absolutely integral part of scheme governance.

At a time of corporate belt-tightening, when pension schemes are sadly an obvious target for cost-cutting, the importance of that role cannot be over-stated.

Now it goes without saying that the TUC welcomes the Government's stated aim to move towards having 50 per cent of trustee boards made up of MNTs.

But there is a nagging sense that not enough progress has been made in delivering this aspiration.

That's why the TUC this year commissioned IQ Research to examine attitudes towards the 50 per cent goal - and perhaps more pertinently, to analyse the extent to which the one third requirement is being achieved.

The results are due to be published soon, and they certainly contain much food for thought.

But what I can say now is there is very clearly a high level of support from pension schemes for MNTs - and as a result of this a lack of credibility in the traditional industry view that it is difficult to get members to come forward as trustees.

These are findings we hope to take up with ministers in the weeks and months ahead.

There can be no doubt that MNTs provide much-needed checks and balances within the institutional investment framework.

That's why the TUC welcomed the Myners Review back in 2001, and why we have just responded to the Treasury's consultation on updating the Myners principles.

In particular, we want to see proper member representation, including practising MNTs, on the new Investment Governance Group, which is due to take ownership of the principles.

Our view is that it cannot - should not - be dominated by the pensions industry.

And the need for greater pluralism in key decision-making processes takes me onto our second key challenge: and that's to encourage more engaged investment.

The TUC has been campaigning for years for much greater disclosure among fund managers of voting behaviour at AGMs, which we believe is an essential element of engaged investment.

Today we are publishing our sixth annual Fund Manager Voting Survey, and another disappointing response rate once again underlines the need for a fairly fundamental change of direction.

Eighteen months on from the Companies Act, which gave the Government reserve powers to make public voting compulsory, a hard core of fund managers still refuse to reveal how they vote at company AGMs.

While the voluntary approach has delivered some progress - with the likes of Aberdeen Asset Management, Baillie Gifford and Legal & General now making comprehensive disclosures - it still hasn't delivered enough.

Indeed fewer than half the funds surveyed actually responded to our survey - a significant reduction on the level of responses three years ago.

And not only is quality of the information publicly disclosed sometimes limited - making meaningful comparisons difficult - but on some of the most sensitive issues, there is a lack of transparency.

For example, when it comes to boardroom remuneration - which has assumed even greater significance given the emerging link between City pay and turmoil in the money markets - all too often the silence from fund managers sadly remains deafening.

At a time when the Governor of the Bank of England, director-general of the CBI and leading columnists in the Financial Times have all expressed concern at the way bankers, traders and executives are being rewarded, this is simply not good enough.

All of this points to the need for much more active, responsible investor behaviour.

That's why the TUC will be looking at the potential for long-term factors such as corporate governance, labour standards, and environmental and social behaviour to be considered in the investment decisions and ownership activity of the new Personal Accounts.

And why, in the autumn, we will also be launching our Engaged Investment Charter.

The need to promote more responsible investment takes me neatly onto the third challenge we face: and that's to get to grips with some of the changing economic realities around us.

I've already talked about the impact of the current downturn - what Mervyn King has labelled the end of the NICE decade, or 'non-inflationary constant expansion'.

But the wider and perhaps more difficult task now facing us is to keep abreast of some of the fundamental changes that are taking place within capitalism itself.

The post-war norm of the publicly-quoted company as the mainstay of the economy no longer holds sway.

A new generation of corporate actors has emerged in the past two decades - and never has their power been greater than now.

And the increase in restructuring and M&A activity, often at the behest of these financial intermediaries, means we need to guard against any future threats to pension schemes.

That's why the TUC has welcomed the additional powers proposed for the Pensions Regulator in the recent DWP consultation, and why we are campaigning for a full review of pensions buyout models.

More broadly, there can be no doubt that the growth of new forms of capital poses huge challenges for policymakers.

In this age of all-powerful investment banks, sovereign wealth funds and hedge funds, it's clear we need a regulatory regime that is genuinely fit for purpose.

Indeed this is very much work in progress.

Just last week, for example, the Financial Services Authority announced plans to better regulate hedge funds by introducing tighter restrictions on the widespread practice of short-selling.

A welcome step, for sure - but only time will tell if it makes a lasting difference.

And think too about the rise of private equity, which Paul Myners talked to you about last year.

Yes, as the supply of cheap credit has dried up, the private equity juggernaut seems to have slowed down in recent months.

Whether this is a temporary or permanent phenomenon remains to be seen.

But none of us should underestimate just how dramatically private equity has reshaped the UK economy in the past five years or so.

With many companies being taken private, the stock market itself has shrunk in size - reducing choice for investors, and arguably making it more difficult for them to spread risk.

In the first half of 2006, in what was a pretty healthy bull market, the value of the London stock exchange actually fell by £47 billion.

As the FSA has commented: 'The quality, size and depth of public markets may be damaged by the expansion of private equity; increasing numbers of companies with growth potential are being taken private, and fewer private companies are going public'.

That's something that impacts hugely on our work.

Last November, the TUC published a report by PIRC looking at private equity as an asset class.

And, irrespective of concerns about jobs, pay, pensions and working conditions, there is certainly much for us to get our heads round.

On the credit side, there is some evidence to suggest that, at the top end of the spectrum, private equity delivers superior returns, and offers fund managers opportunities to diversify their portfolios.

But on the debit side, it is doubtful whether the majority of funds deliver better performance, whether returns can be sustained over the longer term, or whether it is wise for investors to sign up to deals that are often leveraged to the hilt.

As the Economist magazine warned last year: 'It was investors who suffered in the 1980s from the last round of private equity excesses. The workers of the world should be worried again - but as pension fund members, not as political activists'.

So there is much for us to ponder.

The changing face of capitalism, of the markets themselves, is a reality none of us can afford to ignore - whether from a trade union point of view, or an investment point of view.

Alongside the need to bolster the role of MNTs and promote engaged investment, all of this represents a pretty challenging agenda.

But I believe trade unions can make the running on these issues.

After all, it was us who put private equity firmly in the public spotlight last year.

And it was us who have consistently led the way on the pensions debate, as the Secretary of State James Purnell has acknowldeged.

Once upon a time, our calls for the restoration of the earnings link to the basic state pension, for a better deal for women and carers who take time out of the labour market, and for compulsory employer contributions to schemes were dismissed as idealistic daydreaming.

Today, they are the cornerstones of a new pensions consensus in the UK.

So my message today is this: we having nothing to lose by thinking big.

With a little imagination, with a little boldness, and with a little help from ministers, I believe we can make similar headway on the equally important issues we are discussing today.

Improving the governance of schemes, making investment behaviour more engaged and more responsible - and doing this at a time of profound economic change.

The TUC certainly looks forward to working with all of you to make this goal a reality.

Thanks for listening.

Briefing document (2,100 words) issued 27 Jun 2008