Jacqui Smith MP

Standard Chartered CEO Forum

I'm also delighted to be meeting you at such an interesting event where you've been focusing on 'Being a CEO in difficult times'. As a Government Minister, I am certainly qualified to talk about difficult times - if not the challenges of being a CEO. But you have an impressive array of senior business experience here. And such a cosmopolitan and wide selection of businesses too - from South East Asia, China and India.

Today I want to talk about the enormous challenges of the global economy. And how we are working together in an increasingly robust partnership between Government and business to tackle these challenges. And make Britain the best place in the world to do business.

These are uncertain and difficult times globally. For Government and businesses.

We've always known - as a great trading nation - that we can't be immune to events beyond our borders. September 11th, Enron and WorldCom, Iraq brought this home to us with force. With huge effects on our investors and markets.

The FTSE 100's fallen 50% in the last three years. 60% in France and Japan, 65% in Germany.

The three largest economies in the world have all experienced recession.

And world trade has been falling - something that didn't even happen in the recession of the early 1990s.

On top of this, we've had China joining the WTO, India producing 220,000 science and IT graduates a year, and ten more countries are joining the European Union next year, with others queuing to join.

Technology and consumer tastes are now changing so fast that product life-cycles - once four or five years from initial design through launch to peak and then decline - may only last just one or two years.

Meaning new opportunities, but new challenges too.

In particular for our manufacturing industry, which, despite huge efforts, has seen export orders down, and jobs lost. In Shipbuilding to South Korea. In textile and clothing to Asia.

And now the new jobs that took their place - in financial services, IT, business support and call centres - are moving abroad too - to India, where wages are lower, graduates queue up for call centre jobs - and staff not only speak English, but have learnt to speak English with a Scottish accent!

We cannot hold back technological change, or the growth of developing countries - and we should not try to.

We cannot compete on the basis of low cost, low skill, low margin goods - and we should not want to.

Our response to even faster change and even greater competition cannot be protectionism. It has to be innovation.

Higher value-added products. Faster, cleaner production processes. A virtuous circle of investment, skills and innovation, higher profits and higher wages.

But this isn't easy. It's always difficult being a CEO - balancing often competing and sometimes conflicting demands. But it's particularly tough at the moment.

Driving up shareholder value when markets are falling. Making decisions about global resourcing when the spotlight of adverse publicity stands ready to shine on you. Investing in new equipment when the shareholders are calling for another dividend.

And it's difficult as well knowing what shareholders want - when shareholders are increasingly diverse and spread over national boundaries.

And it's difficult too balancing responsibilities to different parts of society - customers, labour pool, potential suppliers.

I sympathise. And empathise. My customers vote through the ballot box. Your customers vote with their custom.

As a Minister, I know what it means to balance the views of a wide range of stakeholders - business employees, consumers, NGOs.

And that's why I'm so particularly impressed the way our very best businesses are responding to the challenges around with such huge gusto and innovation.

Many of you around this room will be only too aware of what it means to be simultaneously fighting the wars for talent, ideas and new markets.

First, take the war for talent. And the ways our best companies are transforming the way they do business to make sure their workforces represent the diversity of their customer base and are pooled from the whole of our society.

Sainsburys are appealing to older workers with a scheme so workers can draw partially on their pension whilst reducing their hours, and still pay into their pension. 15% of the workforce is over 50 and 1% over 65.

B&Q, at their employee's suggestion, celebrate different cultures and religions festivals at their stores. Employees are encouraged to talk about their values and cultures at work and in team briefings.

Lloyds TSB offer compressed working, homeworking or balancing up longer hours in term time with shorter hours in the holidays. Performance is up. Profits are up.

My Ministerial job combines industry, corporate governance and equality. Some have asked where the link is? I am clear that until we have businesses and a society that judges on the basis of talent and provides opportunities for all to contribute, we will fail to maximise our success. Right for individuals and right for economic success.

Second, take the way that companies are coming up with new ways to win the war for ideas.

Like Framestore - the company responsible for the digital animation and electronic models in Walking with Dinosaurs and the Harry Potter films. Now the largest visual effects and computer animation company in Europe.

Or Ford and Nissan, who have both located their design centres in London.

As Shiro Nakamura, senior vice-president of Nissan Motor Company and president of Nissan Design Europe, said:

"We chose London for its vibrancy and multi-culturalism, as well as its strength in all art mediums including fashion, art, architecture and car design."

Microsoft provides a games room for staff and even a mechanical massage chair to get their staff thinking!

The best companies find ways to generate the best ideas and then use them to their advantage.

Third, the way companies are fighting to win the war for new markets.

With the global transformation I outlined earlier, our best businesses are already looking at new opportunities overseas.

Just look at Poland, with Glaxo SmithKline, BP, Shell, Cadburys Schweppes, Pilkington Glass, and Energis - a significant investor in telecoms, and BOC all very active. Or Tesco - with 48 stores in Poland alone, employing 8,000.

It's not just reaching across international borders - but crossing domestic cultural borders as well.

HBOS, after extensive research, started sending out Indian sweets - traditionally used at happy occasions - in direct marketing campaigns. Their feedback showed customers were positively surprised the bank had made such an effort to understand their culture.

For us in Government, we need to back business - rising to these challenges and reaching new levels of success.
We need business to succeed because the stronger our economy, the stronger our society. Business creates jobs and prosperity for families, communities and society and provides the wealth to invest in schools, hospitals and public services.
We want a partnership. Where we provide the environment for business to flourish - and you go on to become more efficient, more innovative and more successful. Because that's the only way that we can all enjoy higher standards of living.

But it doesn't mean being subservient to business. As I said earlier, just as the successful CEO must balance interests, so does must Government.

Which means saying no as well as yes - but taking the tough long-term decisions in the national interest.

And showing leadership in what we do at home, in Europe and in the world.

First, at home.

Because of the tough decisions we took in the first term, our economy is stronger than ever before.

Now we've entrenched macro-economic stability we have

• The lowest interest rates for 40 years
• Faster growth than other major European economies
• The lowest unemployment since 1975 - 1.5 million jobs been created since 1997

Whilst the global downturn has blown the door off some country's economies, because of these strong foundations, we've barely heard a rattle of the letterbox.

So we'll preserve this stability at all costs. And use it as a platform as we raise productivity.

If we could match the levels of productivity in manufacturing alone to our main competitors, we'd be £80 billion a year better off.

Last year we published our manufacturing strategy the first Government strategy on manufacturing in 30 years.

This set out how, if we're to close this gap, we must better connect our science base with industry. Getting ideas out of the labs and into the factories so products are invented in Britain, developed in Britain and made in Britain.

With 1% of the population, we fund 5% of world science, produce 8% of all scientific papers and get 9% of all scientific citations.

Extraordinary achievement. But we need to make sure it's properly harnessed by industry.

So

• We're increasing spending on science and innovation faster than almost any other area of Government expenditure. 10% a year in real terms. We need to ensure that this investment in science is turned into wealth creation.
  
• We've extended the R&D tax credit, a £400 million boost to business.
  
• We also published our new skills strategy in the Summer and, later this year, we will publish our review of innovation policy. Having spent much of the summer talking to our best inventors about what hinders them and what holds them back.

Another role for Government at home is to make sure our markets are open and dynamic so that everyone has a chance to contribute to and benefit from rising prosperity.

With the minimum wage, we've helped people get back into work. With the Enterprise Act, we've helped people get back into business after honest failures. With the Employment Act, we're helping families better balance their work and home lives - so workplaces can reach higher rates of performance.

We also need to protect the reputation of business. Making sure that Britain continues to be seen as the best place in the world to do business.

Our corporate governance system has long been regarded as one of the best in the world. We need to make sure it stays this way.

We responded quickly to Enron, WorldCom and Andersen's collapse in the States. Not with knee-jerk reactions - but a measured and proportionate response.

Derek Higgs and the FRC changed the Combined Code to strengthen confidence in our boardrooms,

We also acted on executive pay.

It's not surprising that people are outraged when directors responsible for massive corporate failures walked away with huge pay-offs when employees were losing their jobs and investors their pensions.

Boardroom pay isn't the government's responsibility - it's a matter for the shareholders. So we put information and power into the hands of the shareholders - requiring companies to publish full details and hold annual shareholder votes on executive pay.

But having made these changes to corporate governance, I sympathise with those in the Boardroom who now ask when will transparency and accountability we've demanded of them be reciprocated by those in the investment community.

It's time for the investor community to live up to its side of the bargain.

As Patricia Hewitt outlined recently, whether through voluntary codes or regulation, we need to create a chain of transparency and accountability that stretches from the boardroom to the individual shareholder and saver, via the pension fund manager, trustee and institutional investor.

Because successful companies building long term value for their owners need those owners to be active and engaged.

As well as taking action at home to spread opportunity and prosperity, we're also taking action in Europe.

More than half our trade is with Europe with 3 million jobs linked to this trade.

For decades now, unemployment in Europe has been twice levels in the States.

The Lisbon summit marked a change in gear in how we tackle this - away from heavy-handed regulation and intervention towards knowledge, skills, enterprise and innovation. Making Europe the most dynamic knowledge driven economy in the world.

We need to keep Europe focused on delivering jobs and prosperity. The response lies not in building a "fortress Europe", but in building a wider Europe that is open and dynamic. And reaches out to the world.

Europe can play a key role in re-energising trade talks after the disappointment of Cancun.

Although everyone is writing Cancun up in terms of the political and diplomatic ups and down, the political losses, the key is the loss that this breakdown has inflicted on the whole world - our wealth, stability and security.

And no-one group has suffered more than the developing world.

Over 1 billion people live on less than a dollar a day. Tens of thousands die from malnutrition and disease every day. More than half a million women die in pregnancy and childbirth every year.

Halving global tariffs would raise global income by $400 billion - resulting in developing country gains of $150 billion a year - three times current aid flows; lifting over 300 million people out of poverty by 2015.

We missed an opportunity in Cancun.

We now need to focus on the new deadline of 15th December and, instead of picking over the bones of Cancun, we should look at the positives that came from it.

I greatly welcome the more effective and more coordinated voices of the developing world that shows how the WTO can represent all its members.

With investment and competition on the back burner, we can concentrate on other priorities such as agriculture, Non Agricultural market access, services and Special &Differential Treatment where there are big gains to be had by all

In closing, these are times of huge challenges and huge opportunity. Of huge change and huge determination. Determination internationally, in Europe and in Britain. And a commitment between business and Government to work together for growth, opportunity, success and social justice.

Making the world stronger and more secure. With more opportunities for everyone, at home and abroad, to share in rising prosperity.

Thank you