Corporate Over-Reach – and what can be done about it. By Bryn Jones

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The overwhelming influence of giant corporations on political and social life was barely raised in the UK’s recent and wide-ranging general election campaign. There were tepid proposals to curb excessive price rises or generous corporate tax cuts, but these received torrents of protest from the Establishment. Yet, as Dr Bryn Jones explains, many economic and social issues, over which there is so much political hand-wringing, ultimately stem from the dominant role in our society that large corporations have assumed or been ceded.

Insufficient public funds are partly caused by systemic corporate tax-dodging. Low-paid and insecure employment coupled with sky-high executive pay stem from unequal powers within the business system. These, and other issues, such as dodgy outsourcing of public services are all political hot potatoes. All are linked to the disproportionate ‘corporate over-reach’ practised by big business in the UK.

 

What Is Corporate Over-reach? Abuses of power

It’s analogous to car dependence. Cars first became popular because they were convenient means of travel through uncluttered roads for isolated households and communities. No one envisaged or bargained for the subsequent six-lane urban motorways, thousand-car traffic jams, pollution, giant High Street-killing supermarkets and acres of car-dependent suburban sprawl. Likewise, share-traded, executive managed (ST/EM) corporations began life with modest purposes; as joint enterprises that limited the risks of a few individual citizen-investors who oversaw subordinate managers. Today’s descendants of these early corporations are the vehicles for an oligarchy of super-rich executives who operate largely independently of masses of anonymous investment funds. Corporations, literally in some sense, tower over society. They dominate rather than respond to market processes. Consumers, in most business sectors, are completely reliant on goods and services provided by a handful of corporations. This economic power, coupled with special legal privileges – originally intended to give modest protection, also enables corporations to act as political actors and major influences in the private lives which make up our ‘civil society’. Sanctified by a warped neo-liberal economics orthodoxy, big businesses not only receive billions in public funds, as subsidies, tax breaks, and ‘outsourcing’ or privatisation contracts, they also have front seats in policy-making forums and government decision-making. Through corporate social responsibility (CSR) programmes corporations have also gained influence over community activities and the funding or management of charities and other civil society organisations.

 

Sources of Excessive Power

From the 1980s onwards, the autonomy and scope of the ST/EM corporations was accentuated by the Thatcherite and international neo-liberalisation of trade, finance and business. But corporations’ ‘structural’ power rests on four longer-standing pillars:

  • limited liability of investors – which reduces their interest in the executive managers’ activities;
  • the company’s status as a legal subject in its own right – which creates potential immortality and the power to act as an independent entity;
  • operational organisation of mass production (whether of goods or services) – creating a need for anonymous mass finance and the power to dominate consumer markets; and
  • the ‘divisional’ system of internal organisation which both concentrates executive control over their constituent businesses and allows these to be dismembered through liquidation or sale to other businesses.

At the centre of this complex is the ‘ownership oxymoron’ which derives from limited shareholder liability and separation from the actual management of the firm. Despite repeated political and legal efforts it has been difficult to endow the investors with meaningful ownership rights. Theoretically, putative ownership should be exercise through shareholder voting on executive appointments and general business policies. In reality corporate democracy is largely a sham. There are major blocs of disinterested shareholders who mainly pick up the dividend cheques but play only a token role in executive elections and general meetings. In democratic terms corporations are run by oligarchies of executives. This lack of accountability signals a wider problem of what social science analysts call an absence of ‘social embeddedness’: dis-integration from society and its communities.

 

What has been attempted to combat Over-reach?

The various forms of over-reach cited above, compounded by scandals over financial malpractice, environmental abuses and human exploitation through corporate supply-chains – which stretch into the world’s developing economies – have stimulated widespread concern. Some media, academics, charities, churches, campaigning organisations share a diffuse but heightened dissatisfaction, sufficient to stir concern at the fringes of mainstream political debate. Three main types of solution have been mooted. The first is the neo-liberal or market approach. This proposes that corporations be subjected to greater competition to reduce the economic base of their powers. The second, and overlapping approach is for regulation of the most egregious monopolistic firms in sectors, such as energy, where competition is difficult to create.

The third approach is for corporations to become more responsive to the wider society; either through voluntary CSR ‘engagement’ with social and community ‘stakeholder’ groups; or by changes to their governance to make them more accountable to either government or stakeholders. However, significant proportions of the civil society sector have concluded that CSR engagement has been ineffective and that the accountability path should now be pursued. The general failure of the market and regulation solutions – illustrated by the political impasse over the pricing policies of the energy utilities – has strengthened the convictions and case of accountability campaigners, such as the multi-NGO CORE coalition.

 

Which remedies are relevant and politically possible?

My new book Corporate Power and Responsible Capitalism? surveys the various alternatives and reforms to ST/EM power and over-reach which campaigners, politicians and academics have identified. Ineffective regulation aside, these alternatives can be classified as: 1) adaptations of other countries’ corporate models (chiefly Japan or Germany; 2) replacement business systems – particularly industrial districts of small, and networked firms, or mutuals (co-ops); or 3) reforms to democratise the existing UK ST/EM constitution.

9781848449701Research suggests that the first approach would require considerable collateral institutional change and would probably be fiercely resisted by vested interests. As happened in the defeat of mild proposals for German-style, employee board-level representation in the 1970s. There are economic and social spaces where the second category could be seeded and nurtured. But the time-scale for fruition could be lengthy and would not, in the main, disturb the empires of the giant firms. The final category is more promising. Not only could it be promoted in a more piecemeal way, through existing mechanisms of corporate governance, it would also be consistent with the thinking of some mainstream politicians and business reform groups.

If my analysis of the sources of corporate over-reach is correct, and embedding through social accountability is the most effective solution, then minor legislation could be used to empower alliances of long-term and small shareholders, together with relevant stakeholder groups. The kinds of appointment committees recently introduced into Sweden’s similar corporate model would give these investors separate authority to appoint the executive managers and the membership of remuneration committees which set executive pay. This would depart from the current system, where executives effectively nominate and secure the appointment of committees and preferred candidates with outlooks and interests much like their own. If Sweden is any guide then, over time, there could be a progressive subordination of executive managers to the board of directors. With an appropriate cultural climate, board members could be recruited from currently excluded groups – women, ethnic minorities, employees and civil society organisations’ representatives. In this way more social embedding would occur. Greater accountability could also be achieved. Together, these developments would help to rein in corporate over-reach.

 

Dr Bryn Jones is a Senior Teaching Fellow at the Department of Social and Policy Sciences, University of Bath.  His latest book Corporate Power and Responsible Capitalism: Towards Social Accountability is published by Edward Elgar.

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