Page last updated at 13:46 GMT, Thursday, 30 April 2009 14:46 UK

Anti-poverty firm attacked by MPs

Child in oil drum in Nigeria
CDC is responsible for channelling investment into many of the world's poorest countries

The "extraordinary" £1m-a-year salary for the head of a government-owned company set up to combat developing world poverty has been attacked by MPs.

The salary of CDC Group chief executive Richard Laing rose from £383,000 in 2003 to £970,000 in 2007, the Commons Public Accounts committee found.

But the Department for International Development, its 100% shareholder, was not properly consulted, the MPs said.

Committee chairman Edward Leigh said oversight of CDC was "ineffective".

The committee also expressed concerns about CDC's decision to hold some £1.4bn - over half its £2.7bn capital - within the UK, rather than investing it abroad.

It also questioned why CDC's investments since 2004 had increasingly been made in countries like China and India which were already attracting foreign investors.

'Too narrow'

CDC invests in developing world businesses in support of DFID aims to promote growth and show commercial investors that profits can be made in such markets.

It invests in 600 companies, which together directly employ almost one million people.

Although the fund management company is owned by DFID, the department pointed out CDC had not received any funding from the government since 1995.

A recent National Audit Office report said it had demonstrated "exceptionally good financial performance", increasing its assets from £1.1bn to £2.7bn since 2004.

But the PAC report said that there was "limited evidence" of CDC making an impact on poverty reduction.

DFID's oversight "needs to be improved", the report added, warning that the company's efficiency and business model were "questionable".

It noted that administrative costs were rising as a proportion of the value of its portfolio.

However, the report welcomed recent agreement between DFID and CDC of a "more stretching" investment policy.

This will require the company to limit new investments in China to small and medium-sized enterprises which might otherwise have difficult raising funds.

CDC is government-owned, but its obligations to report to the Department for International Development have been weak
Edward Leigh MP

It also accepted that that the company's accumulation of £1.4bn in the UK has been helpful in the current difficult economic climate, allowing it to carry on investing in the developing world during the downturn.

Nonetheless, it criticised the decision of the CDC board's decision to bring pay structures for senior executives in line with highly-paid fund managers in the commercial sector.

This had resulted in "extraordinary levels of pay in a small publicly-owned organisation charged with fighting poverty", the report concluded.

This had not been approved by DFID until after it was introduced, and was based on "dubious" comparisons, it added.

The report said: "Besides enjoying the security of working in a publicly-owned body, CDC executives do not have to compete for money to invest.

"And the pay arrangements take too narrow a view of performance, with too much emphasis on financial performance and too little on poverty reduction."

Short-term bonus

Mr Leigh said CDC Group had proved it was very good at turning a profit.

But he added: "We need to know, however, how effective it is at reducing poverty and so far there is limited evidence.

"CDC is government-owned, but its obligations to report to the Department for International Development have been weak. Oversight by the department of how CDC operated agreed remuneration arrangements was ineffective."

Liberal Democrat MP John Pugh, a member of the committee, said: "With stratospheric salaries, off-shore subsidiaries and generally opaque financial arrangements, the CDC is in danger of becoming just another equity firm.

"The poor running and supervision by the Department for International Development allows it to wear a halo it may exploit but may not actually deserve."

A Department for International Development spokesman said: "Since 1995 CDC has not cost the taxpayer a single penny. But it has committed £2.7 billion of new investment to the developing world, helping almost 700 businesses to employ nearly 1 million people.

"The chief executive's 2007 remuneration package of £970,000 was reduced to £572,000 in 2008 - a decrease of 41% - and in the light of the current economic climate the CEO of CDC has not received a short-term bonus this year.

"We are finalising an agreed new remuneration framework for CDC which will link executive pay even more tightly to the delivery of DFID's objectives. We have also recognised the need for improved oversight and put in a place a new governance framework."

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