A company ombudsman is needed
Nicholas Davenport
One thing which Mr Heath can be relied upon not to do is to repeat the mistake of his Tory predecessors in 1951 who applied monetary brakes to the economy on the first sight of balance of payments trouble. (It was the start of the ' stop-go' policies which have been the bugbear of British economics.) I would guess that Mr Heath looked upon the ghastly trade returns for March as a mere ' Morning Cloud' in his race for a consensus Phase 3. Some economists have actually come to his aid by puffing it away. Imports, they say, rose because of our stocking up on a rise in world commodity prices; exports were arbitrarily down for a month but for I the first quarter were 14 per cent higher than in the second half of 1972. Of course, the resulting deficit on visible trade for the month — £197 million — must. not be extended for the twelve.. The ' invisible ' surplus is still running at £56 million a month and is likely to increase; the stocking up should be completed before the end of the year and world commodity prices will turn down before long. By St George!—we all hope so.
But we have got to reckon that the deficit on the balance of payments this year — taking current trade only — is likely to be well over £500 million. This will not matter so much if the export trend keeps rising. It has begun the year well. As the unit value index was only 3 per cent up the money rise in exports of 14 per cent in the first quarter points to a strong growth in volume, which should carry on seeing that export orders are significantly higher. This augurs well for the next six months, particularly as the depreciation in sterling over-all is around 12 per cent. But the market which shows the biggest rise in demand for our exports this year has been the American where we have only a small exchange depreciation. Our exports to the US were up 23 per cent — nearly double the rise in our exports to the EEC. So let us pray that the Nixon boom will not peter out. It has been formidable enough so far. In money terms the growth of the American economy in the first quarter of 1973 is reck oned to have been 14 per cent. In real terms it was around 7 per cent, which points to a worrying increase in their inflation and a fear of still dearer money. Will the Nixon crisis kill the boom?
As only exports can help us to keep our own economy growing at the Heathian 5 per cent rate when the consumer spending spree dies down it is all important that our company managements should be kept on their export toes. I welcome therefore the decision of the British Insurance Association to join at long last with the associations of investment trust and unit trust managers in a watchdog committee which will use their powerful shareholding to ginger up or even turn out managements which have fallen down in their job. The committee was the brain-child of Sir Leslie O'Brien, the Governor of the Bank of England, but he did not think out the operational detail. Clearly, the institutional watch dog corn-. mittee cannot have secret meetings with managements when they suspect that things are going wrong. They would then be in possession of inside information and sooner or later the information would leak out and someone would act on inside knowledge and sell the shares (which the Panel Committee now regards as a criminal offence). The watchdog committee can only act legitimately at shareholders' meetings. I have long advocated a shareholders' ombudsman who should attend all general company meetings. It is obvious that his office should be financed by the institutional investors who should use their shareholding power to call for an extraordinary shareholders' meeting when crisis calls. The cases of Rolls-Royce and BSA come to mind. Both companies in their different spheres were vital to our export trade. Yet the institutional shareholders, who were well aware of the troubles, did nothing to call for an extraordinary general meeting and sack their boards.
A shareholders' ombudsman is all the more essential now that life insurance policies are issued
linked to the value of equity shares in an authorised unit trust or a
fund invested wholly in equity
shares. Sir Hilary Scott's committee, whose excellent report on
property bonds and equity-linked life policies called for further safeguards to prevent possible abu ses, might well have supported my ombudsman scheme if the evidence it took had been better informed. An ombudsman office to ginger up management and improve managerial skill is a far better idea than the daft proposal which Judith Hart's committee has put forward in a Green Paper for the Labour Party. It is a proposal to form a state holding company, called the National Enterprise Board, on the lines of the Italian IRE, which will take over twentyfive of our biggest private companies. It would begin by acquiring the existing state holding in miscellaneous companies — 48 per cent in BP, 100 per cent in Rolls-Royce, 10 per cent in International Computers, and then go on to buy a controlling interest in GEC and no doubt in ICI, Plessey, BIIC, Thorn Electric, BSA (if Mr Heath does not get in first), International Compressed Air, British Oxygen, British Leyland (they would be welcome here), Alfred Herbert and Newall, Guest Keen and every other company connected with steel, Turner and Newall, Vickers, Staveley, Whessoe, and — why not? — Pilkington Brothers. The first move in this direction would, of course, drive our most brilliant industrialists abroad, cause a tremendous slump in our export trade through a cancellation of orders on late deliveries, and bring on the worstever crisis in our balance of payments — with sterling down below $2.00.
The reason for my pessimism is that the Labour party, if it regains power, would be the party of the trade unions and the trade unions have demonstrated from the beginning of their time that they are not in the least interested in industrial efficiency, in increasing productivity on the shop floor, in technological development which reduces the labour force, in increasing output per man and reducing unit costs in the export trade. As Mr Michael Clapham of the CBI said, our low level of pro ductivity compared with the rest of the industrial world is " the English disease." If Judith Hart replies that she is well aware of these drawbacks but that she will be able to buy enough management skill by offering life peerages to the non public school type of industrial ists, I do not believe that she will succeed. Life peerages have been. so downgraded and the social
order in our society so bouleversd that nothing counts as it used to
do. If patriotism were appealed to it might take the course of getting rid of Judith Hart, Lord Balogh, Ian Mikardo and all.
Of course, the Labour Party has now committed itself to taking over" the commanding heights of the economy" by nationalising the life assurance companies, the joint stock banks and the rest of our financial overlords. I presume they they would have to in clude the unit trusts and the property companies. As the amounts invested in life companies is now £16,000 million and in the unit trusts over £2,500 million, the small investors, who would see their savings disappear in the market slump, are hardly likely to vote Labour. So perhaps this revolution will never take place.
Nor would the trade unionists be greatly enamoured of the scheme. They are primarily concerned with their wage packets and with improving their standard of living. Judith Hart could hardly claim that disorganisation and upheaval on the industrial front would add a penny to their wages 'or increase employment. Labour tried to imitate the Italian IRI with its IRC in 1964-1970 but it was not a success. It had better try to improve our management efficiency in industry in a more orthodox way. It is, in fact, slowly but visibly improving — and an ombudsman would help.
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