Break the stranglehold of shareholders
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Version 0 of 1. This truly is the age of the corporate. Corporations affect the quality of food, water, medicine, savings, news and almost everything else, but ordinary people have little say in controlling and directing them. Governments can raze mountains, divert rivers, clear forests, build asphalt jungles and give massive subsidies to welcome corporations – but they can’t buy loyalty. Corporations have no loyalty to any place, people or community. We rely on shareholders to impose morality in the global marketplace, but are mistaken, for many corporations have no qualms about operating cartels, rigging interest rates, avoiding tax, selling horsemeat as beef, or ripping off the customer through fuel and energy pricing. Institutionalised abuses enable companies to meet stock market profit expectations, and their own. Profit-related executive pay has grown from 60 times that of the average worker to almost 180 times since the 1990s. Limited liability companies have been with us since 1855, yet it is hard to think of any sustained effort by shareholders to check their malpractices or harmful acts. Occasionally, some shareholders are galvanised, but too often for pursuit of selfish gains. The parliamentary commission on banking standards, which included former Conservative chancellor Lord Lawson, concluded that “in the run-up to the financial crisis, shareholders failed to control risk-taking in banks, and indeed were criticising some [directors] for excessive conservatism. Some bank leaderships resisted this pressure, but others did not”. So shareholders played a key role in the biggest economic crisis of all times, as well as the never-ending programme of austerity that followed. The solution: we must get rid of shareholder supremacy from company law. There was some recognition of this by the commission on banking standards. It recommended that “the government consult on a proposal to amend section 172 of the Companies Act 2006 to remove shareholder primacy in respect of banks, requiring directors of banks to ensure the financial safety and soundness of the company ahead of the interests of its members”. Section 172 asks corporations to recognise the interests of stakeholders. B ut no political party has since shown any inclination to democratise the corporates. Any talk of it is countered by claims that “shareholders own corporations”. Such claims were advanced by new-right economists, such as Milton Friedman, and continue to be popularised by UK government and neoliberal media. But legal and social scholars have long debunked the idea that shareholders can own or direct large corporations, which remain the private fiefdoms of their executives. The most recent balance sheets published by major banks operating in the UK show that, at best, shareholders provide a very small amount of total capital. At Barclays Bank, shareholders provide just 4.9% of total capital compared to 5.1% at Lloyds Banking Group, 5.8% at Royal Bank of Scotland, 6.9% at Standard Chartered, 7.1% at HSBC, and 7.2% at Santander. The remainder is provided by savers and other creditors who, for all their input, have no right to elect directors, or direct business. Indeed, it is hard to find a FTSE 100 company where shareholders provide even 50% of total capital. There is no logical or financial reason to prioritise the interests of shareholders over other stakeholders in large companies. The primary purpose of a corporation should be to serve society. That cannot be done without empowering stakeholders to invigilate corporations, especially those who have a long-term interest in them. In the era of universal suffrage, enabling only those with financial interests to elect directors is unsound. Employees invest their lives, brains, brawn, muscle and sweat to generate wealth, and should be represented on boards of major companies together with other stakeholders. Such boards are common in Scandinavian countries. Executive remuneration should be linked to long-term factors, and remuneration contracts should be publicly available. Pay packages should be approved by a vote of stakeholders. At banks this would be translated as a vote by shareholders, employees, savers and borrowers. It is extremely unlikely that savers receiving measly interest rates, borrowers ripped-off by excessive charges, or front-line staff on low wages would sanction a mega pay package for executives. Thus, stakeholders can express their concerns and exert pressures on directors to improve stakeholder welfare. All too often profits are privatised and losses socialised as companies and their assumed owners walk away from the consequences of their own follies. Limited liability should be a privilege, not a right. This means that businesses engaging in harmful practices should be denied its benefit. For example, the 2007-08 banking crash has shown that too many financial enterprises engaged in tax evasion, money laundering and reckless speculation to enrich themselves, and were bailed out. Even today, the UK government is committed to more than £926bn of financial support. That is in addition to the £375bn of money printed and given away to banks. No country can afford a repeat of such a crisis. The most effective way of curbing predatory practices is to withdraw limited liability and hold the shareholders and directors of these enterprises personally liable. We need active promotion of alternatives to the conventional corporate vehicle: mutuals, co-operation, not-for-profit and employee-owned enterprises. All are subjected to community pressures and control by employees, savers and consumers. They see something beyond making a fast buck. No doubt the above would be opposed by those who fear personal responsibility, democracy and public accountability. It is worth recalling that reforms relating to the national minimum wage, health and safety and gender equality were imposed in the teeth of opposition, even though they enhanced confidence in corporations. The same will be necessary again. People have shown their anger and disgust at organised corporate tax avoidance, and thus forced politicians to act. The same anger at corporate abuses could bring about real change. Unchecked, corporate power will continue to result in abuses, scandals and a destruction of the economy. We face a decision: we can have democracy and accountability, or rampant corporate power with enormous private wealth and power concentrated in the hands of a few business executives – but we can’t have both. |