Turbo-capitalism, not globalisation, has ravaged Britain’s economy and social structure, resulting from a combination of weak company law and a belief that weakly regulated competition is the road to economic success. It uses the assets we all need – water, power, raw materials, social services, commodities and even food – as chips in a game of chance. It is a financial casino with few players and even fewer interested in the damage caused to citizens and society at large.
British company law
Both the cause and the remedy lie with British company law, yet it remains the least examined area of law. The current British Companies Act 2006 is a mid-19th century document updated a little by the European Union. It is inward-looking and concerned with the members (the owners) almost exclusively. Directors have responsibility only to their company. The company is treated as a citizen yet is not held accountable in the same way individual citizens are.
There are now around 4.5 million active companies in the United Kingdom; about one-fifth enter and exit the register each year. It is impossible for the citizen to avoid contact with them each day. Since private capital also controls, directly or indirectly, the media it is difficult for the citizen to gain a true picture and make informed political decisions.
The failure of the City of London
Despite Britain’s financial system being central to global finance, the City of London provides little support to the domestic economy since approximately half of the banking sector’s assets and one-third of non-banking financial institutions’ assets are offshore and of those onshore, most lending is directed towards mortgages and real estate and not to productive business. By draining resources from the real economy, financial sector growth becomes a drag on productive growth which is the real creator of wealth in an economy.
The collapse of companies in recent years highlights the weakness of current legislation and of regulatory bodies and audit. Examples include the demise of Carillion, Interserve, the Southern Cross Group, dozens of power companies, refining at Grangemouth and Lindsey, BHS, Thomas Cook, Debenhams, and of steel companies. As always, the government expressed outrage but took no steps to introduce law to stop these failures. Only the ill-informed would rob a bank in Britain. It is far easier to form a company, ramp it up and liquidate leaving the creditors, the employees and the government with the losses.
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Is it recoverable?
How can company law meet the economic and ethical requirements of the 21st century and the legitimate expectations of the citizens of a democracy?
The company is neither a force for good nor for evil. It is a tool for management, created by the state, which can benefit its country of residence. A company is equally capable of tremendous damage to individuals and to society, demonstrated on an unimaginable scale in the 20th century when in 1948, eight directors of IG Farben – Germany’s biggest company at the time – were sentenced to prison for mass murder at Auschwitz, spoliation and plunder.
What is needed
A detailed redrafting is not possible, but the eight main points of principle to be incorporated can be set out:
1. All companies are subject to all relevant laws.
2. Legal responsibility extends to the board of management and senior management.
A company cannot commit an offence without human intervention.
This principle is necessary for regulating large risks such as AI, which has escaped all regulatory control and is in the hands of private companies that have elevated themselves to the ranks of nation states.
AI will not only amplify human intelligence; it will also amplify our stupidity.
The only hope for democracy is by making the directing management of companies legally responsible for obeying all laws, with penalties sufficiently severe to ensure compliance. This puts governments in control.
3. Interaction between the company and the state must be transparent.
One of the biggest challenges facing a new company law would be to limit the concept of commercial confidentiality to those cases where it applies and end it where the state is involved.
4. Companies are prohibited from funding or otherwise supporting political parties and individual politicians.
5. Large, economically important companies and companies supplying socially necessary services will be subject to added control and scrutiny.
6. All companies must be, and remain, adequately capitalised.
Britain is almost unique in having a company law which pays little attention to the capitalisation of companies, with the inevitable damage this brings.
A minimum capital for new companies should be £5,000+, and a strict requirement for all companies to maintain a level of capital commensurate with their size is essential. It is possible in Britain to strip the capital and earnings out of a major ex-public company, pay them to your wife offshore, allow the company to fail and still be appointed an advisor to the government. This requirement, together with point 8 below, is important because of the explosion in private equity takeovers of British companies, usually with borrowed money.
7. All companies must pay a fair and proportionate amount of tax.
The fair treatment of a company would be for all companies to pay tax at a rate of 25% on taxable profits up to £100,000 and at a rate of 34% on taxable profits over £100,000, rates similar to those which, on average, citizens pay for the use of public services. . Because Britain does not have a dividend withholding tax it must be collected at source.
8. Limited liability does not extend to subsidiary companies.
No subsidiary company should be so weak as to require liquidation or be beyond the resources of its parent company to fund. A combination of the principle of adequate capitalisation together with the removal of limited liability from subsidiary companies would remove an unwarrantedly powerful and unnecessary tool from company management.
A new companies act should also include clauses which fully protect employees and directors from any retaliation should they report illegal activity to the relevant authorities.
Yes, but
Capitalism has failure built into it; it is inevitable. The question is, who picks up the cost following the failure? The world is awash with money, in the hands of companies, hedge funds, private equity and individuals. Not enough of it is available to governments to meet the requirements of the citizen. The political battle today is not between communism and fascism, or between socialism and capitalism, but between a world controlled by companies and one by governments of the people. The power of companies, even multinational groups, is within states’ control. States remain the global power, but only governments can use it.
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