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May


Memo to new boss of CBI: What exactly are you for?

Sun, 5th Mar 2006

AS THE CBI trawls for a new name to succeed Sir Digby Jones as director-general, it's worth pondering the question: what is the organisation for ? The obvious answer is to represent its 240,000 members. But its claim to be 'the voice of business' is problematic. Whose voice, exactly? CBI members are so diverse, covering all sectors and sizes, that about the only thing they have in common is that they all employ people. On many issues what the CBI really represents is the views of some of its members.

Take the case of the Operating and Financial Review. To the delight of the CBI, this much-discussed addition to company annual reports was axed by the Chancellor just months before it was due to come into effect. But a chorus of protest, not least from large companies which spent millions preparing for the change, has forced the government to backtrack and reopen consultations .

Take pensions. Last week the CBI's warnings that Lord Turner's proposals could bankrupt small companies by forcing them to contribute to a national pensions saving scheme were apparently contradicted by a survey showing that employers were more likely to find the proposed levy too low than too high. Few were likely to change their pension arrangements as a result of Turner, the survey said.

This matters, because the views that the CBI expresses carry a large - perhaps disproportionate - amount of weight. One reason is that the media uses it as a convenient one-stop shop for business views, a role it accepts with alacrity. The government also has little choice but to take the CBI's, and other trade associations', word. The CBI and DTI, and to some extent Defra, are bound together because part of these fatally split departments' remit is industry sponsorship - championing industry's cause.

The trouble is that too often what the CBI reflects, and government takes seriously, is the view of the UK's industrial rearguard - the worst of British business rather than the best. The OFR episode is typical. The kneejerk reaction is: all regulation bad free market good leave business alone to get on with the business of making profits.

If this is a caricature of the views of the best UK companies, so are the results imputed to policies that transgress the Neanderthal norm. These are invariably apocalyptic: the costs exaggerated and the benefits ignored. The minimum wage was resisted on the grounds that it would cost jobs and kill small firms environmental legislation is unaffordable and if all the 'last nails in coffins' the CBI has predicted as a result of EU legislation had materialised, the UK would by now be an economic desert.

Unfortunately, this relentless nagging often works. Hence the paralysing timidity of policy in such areas - the emasculating of the climate-change levy, constant nibbling at emissions targets and the feebleness of 'sustainability strategies' (a limp food-industry version is expected next week). This backwardness is economically as well as environmentally irresponsible - as the CBI should know, since it was spelled out by a former director-general, the same Lord Turner.

In his thoughtful Just Capital , Turner showed that market-based regulation was no handicap to growth or jobs - and there was a good case for more of it. Well judged regulation benefits society (and shareholders) by giving companies incentives to innovate competitively rather than exist on the rents of their present franchise, to dream up new products and processes that more than offset the apparent costs of any clean-up.

That's a company's job, as most are well aware - but you wouldn't know it from the CBI submissions. In accentuating the negative, it misses the opportunity of setting a positive agenda. 'I don't see much sign of it supporting companies that want to take a lead on issues like ethical consumerism, climate change, or even bird flu,' says Ed Williams, who used to work in this area for a major retailer. 'These are all moving from the periphery into the business mainstream.'

Instead of blaming everyone else, the CBI should turn its gaze to a different quarter. Though manufacturing is shrinking and the productivity gap with other countries refuses to close, these causes are not something to which the CBI devotes its famed lobbying talents. As reports from McKinsey make clear, the main difference between the UK and its rivals is management - despite the fact that governments have granted everything on the CBI's wish list: weakened unions, a flexible economy and swathes of the public sector to make hay with. We manage people poorly, are slow to adopt good practice and, despite soaring profits, invest less in R&D and capital equipment than almost ever before.

The reason for that is an investment framework that rewards short-term profits at the expense of long-term health and is the least conducive to nurturing growing technology-based organisations of any in the world.

There's something for campaigners to get their teeth into. Will it be among the qualities sought for in hopefuls for the DG's job? A view of the short list will give us a good guess.

The Observer, 5 March 2006


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