When Justin Welby became Archbishop of Canterbury last month, he made it clear the Church of England would become more active on issues involving business ethics. And his first move is to go after executive bonuses.
Archbishop Welby, who is also the spiritual head of Anglicans worldwide, is no stranger to business. He is a former oil company executive and he sits on a British parliamentary committee that is reviewing the conduct of banks in the wake of the financial crisis. He also once wrote a paper titled “Can Companies Sin?” and concluded they could.
In one of the first major announcements since he was enthroned, the Church of England announced last week that it would use its hefty investment clout to rein in executive bonuses, which it said had become excessive owing to a culture of entitlement and greed at many companies. Drawing on the Bible and a variety of studies, the church said it will vote against bonuses that exceed 100 per cent of base salary.
“Awards of more than 100 per cent of base salary can only be justified if an executive director has delivered extraordinary results through exceptional performance to the significant benefit of shareholders,” the church said in the new policy. It added: “Businesses are vehicles for wealth creation, without which there can be no wealth distribution. However, businesses cannot contribute to their full potential to a good society and human flourishing if they have no regard for the society in which they operate, and if individuals in business have regard only for themselves.”
The church has about $12-billion worth of investments spread across roughly 2,000 companies, including Royal Dutch Shell, Vodafone Group, BP, Unilever and HSBC. And it has not been afraid to flex its financial muscle. Last year, the church led the charge against News Corp. during the phone-hacking scandal and it eventually pulled its investment altogether.
The new policy on bonuses is in response to the financial crisis and revelations that some bank executives received large payouts even as they drove their banks into the ground.
“We think annual bonuses have got out of hand and they’ve come to be seen as an entitlement and they encourage executive short-termism,” said Edward Mason, who is secretary of the church’s ethical investment advisory group. “So we’d much prefer to see an emphasis on long-term rewards paid in shares, taking into account corporate performance over five- to seven-year periods, and taking into account ethical, environmental and social performance as well.”
Mr. Mason points to studies that show the median annual bonus for chief executives at FTSE 100 companies has climbed to 150 per cent of salary from 60 per cent in 2001. At the top 30 companies, bonuses are now at 200 per cent of salary. The church has already voted against several company compensation plans that it deemed too generous and it will now vote against even more.
While the church has a detailed ethical investing policy that covers many other issues, it is largely silent on one: female directors. There has been a push across parts of Europe to introduce quotas for female directors on company boards, although Britain has not followed suit. Mr. Mason said the church generally supports more female directors but it does not advocate quotas.
“It’s quite a difficult topic for us because we’ve had the embarrassment of the vote on women bishops in the Church of England recently,” Mr. Mason said, referring to a vote last November when church leaders rejected allowing women to become bishops. “So we tend not to speak out on it too much.”