With great power ... (from Comment is Free)
Two current stories throw a searchlight on contemporary Britain. Farepak collapses, taking with it the £41m that 150,000 customers had saved towards their Christmas hampers. The customers have no rights because Farepak is technically not a deposit-taking bank. Three Natwest bankers are extradited to the US accused of conspiring with senior executives of the now-collapsed Enron to defraud their employers of £20m. There is a row about why they were sent to the US, but that misses the point. Why were no charges brought in this country when their alleged crimes were committed in Britain against a British firm?
It is now typical for the government to turn a blind eye to mega-scale crime or cheating of customers while relentlessly pursuing the pettiest of offenders with Asbos. Corporate crime in particular now almost always goes unpunished, indicating just how far corporate power, allied with a pro-big business government, insulates its holders against redress.
Of course the overwhelming majority of corporate activities are law-abiding. But there have been several recent examples of corporate crimes, misdemeanours, irregularities, and corruption being publicly recorded, but left unaddressed. BAE Systems, Britain's biggest arms company, has been accused of operating a £60m slush fund to pay off the Saudi royal family with commissions on arms sales, but has never been prosecuted. Shell is accused of persistently ignoring critical safety warnings on its UK flagship Brent field in the North Sea by running its four platforms "flat out" while allegedly violating operating procedures, falsifying maintenance records and corruptly failing to maintain safety-critical equipment despite repeated warnings, leading ultimately to the deaths of offshore workers. But it has not been prosecuted. Companies have abused and looted employee pension schemes. Insurance and financial services companies have mis-sold pensions and cheated on endowment mortgages. But there has been no commensurate retribution.
The main reason is that the UK authorities look the other way. Generally, allegations of corruption are not rigorously pursued, nor are there any culture of systematic legal redress as there is in the US. There has not been a single prosecution for bribery in the last seven years in the UK since the OECD anti-bribery convention came into force, and only four out of 40 accusations of bribery have even been investigated. The loopholes are huge, allowing companies to escape all responsibility for the actions of their subsidiaries or agents abroad even when they were acting on their behalf.
The government continues to send out perverse signals about corporate crime. The Ministry of Defence transferred two surplus frigates to BAE for scrap value of only £100,000, despite the fact that they were built 15 years ago and cost the taxpayer £240m. In 2003 BAE sold them on to Romania for £116m with the help, allegedly, of £7m in secret offshore "commissions". No attempts to recoup the money were made on behalf of the taxpayer. In 2004 DTI drafted new rules saying that to get Export Credits Guarantee Department (ECGD) underwriting of their exports, companies had to reveal the identity of their secret commission agents. After a concerted lobbying campaign by Rolls Royce, BAE and Airbus, the government caved in and dropped these anti-corruption rules. Ofcom, the television regulator, has recently decided to enfeeble its controls over junk-food adverts in order to uphold the share values of the commercial broadcasters, regardless of whether the move hobbles the official drive against obesity.
What this uncomfortably cosy relationship between Whitehall and the corporate sector reveals is that we are dangerously close to the cooptation of government by business. Some companies object to the government's operating and finance review - which would have required the top 1,000 companies to report on their environmental and social impacts - so Gordon Brown abruptly drops it. Two recent statutes, the companies billand the legislative and regulatory reform bill, are in reality de-regulatory measures designed to benefit business, not restrain them. Significantly, when major corporate prosecutions do take place the company is indicted in the US, not the UK.
All this is merely the visible sign of a new insidious culture in this country interlocking power and money in the closest embrace since the Edwardian era. This corporate power now reaches more widely and deeply into all aspect of life than ever before. As market culture replaces public values and ethical vision, corporate dominance is steadily infiltrating every key forum of the nation's decision-making.
But it is not irreversible. To align business to the wider public interest, several reforms are urgently needed to curb the excesses of the corporate state and restore a proper balance to public life. To counter over-powerful chief executives manipulating opaque company accounts, directors should not be able to hide behind the veil of incorporation. Chief executives should be made, as under the US Sarbanes-Oxley Act, personally liable for cooking the books. Since shell companies and trusts are key vehicles for money laundering and tax evasion, transparency should be introduced by requiring full information in company reports about the use of offshore tax havens, trusts, nominee companies, and shell companies. Conflicts of interest compromising auditor independence should be eliminated, or audits replaced by insurance cover compensating stakeholders for director fraud, negligence, misrepresentations, and misleading financial statements.
All major companies should be required to report annually on their social and environmental impacts. Adequate public funding should be available so that malfeasance or misdemeanour claims against corporate bodies, which meet rigorous public interest criteria, can be pursued by individuals affected, community organisations or NGOs. Offences committed abroad by the agents or subsidiaries of UK multinationals, including allegations of bribery, should be prosecutable in the UK. Voluntary codes of practice, which are an unenforceable and clearly ineffective form of corporate governance, should be given full legal backing. ECGD cover should be made conditional on full compliance with UK legislation and OECD rules, to block such practices as corruption, illegal logging, and chemical and waste dumping. The authorities should take urgent steps to tighten the currently far too cosy relationship between companies and their regulators.
Taken together these reforms would produce a healthier power structure and rebalance the position of business as a more equal and respected corporate citizen.