After more “wilful blindness”, it’s time to change corporate law

After another incidence of “wilful blindness” (in the case of Rupert Murdoch and phone hacking) it’s time to change corporate law, writes Cormac Hollingsworth.

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The hacking report (pdf) uses an important phrase in its accusation of Rupert Murdoch: “wilful blindness”.

Rupert-MurdochThe report says Murdoch Snr:

“…turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications.

“This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International.

“We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company.”

The phrase has important pedigree.

In the instructions to the jury in the Enron trial the judge cited wilful blindness, defined as:

“…if there is information that you could have know, and should have known, but somehow managed not to know, the law treats you as though you did know it.”

Back in the early noughties, it was thought Enron’s board was alone – but now it is becoming so common it is threatening our pensions, and our economy.

 


See also:

Lord Lawson cherry picks data to spread climate change denial 8 Nov 2010

Lawson to councils: Do “absolutely nothing” to cut your carbon 5 Aug 2010

More evasiveness and secrecy over climate foundation’s funding 23 Jun 2010

Lawson still won’t come clean about sceptic foundation’s funding 10 Jun 2010

Lawson remains silent on funding as committee debates “climategate” 2 Mar 2010

Five questions for Lord Lawson and Benny Peiser 1 Mar 2010

Oil links of Tory climate denial grandees 25 Nov 2009


 

For example, in March 2007, two of the largest dividend payers in the stock market were RBS. However, RBS told shareholders in March 2007 it wasn’t engaged in subprime lending, and yet we now know from the FSA report (pdf) that RBS had decided to ramp up its business in this area in mid-2006 and won American securitisation house of the at the end of the year.

No non-executive director has been charged while shareholders have been wiped out.

It’s easy to explain much of the financial crisis on this flaw. But it goes beyond the banking sector.

After its oil spill, BP’s chief executive walked, and has paid $32.2 billion, all charged to their shareholders wealth, the value of BP is still $40 billion less than before the spill, but no board member has been charged.

Timothy Noah’s new book, The Great Divergence: America’s Growing Inequality Crisis and What We Can Do about It puts corporate pay as responsible for 30% of the rise in inequality in the US. But what about the unfairness of the fact that being on the board of a global company means your shareholders monetise your liability while you walk?

As Michael Sandel argues in his new book What Money Can’t Buy: The Moral Limits of Markets this is not only unfair, it corrupts social norms. And it is this corruption of norms that is costing our pensioners too much.

But if you’re not convinced by the cost of corporate board wilful blindess to shareholders, then how about taking a look at the benefits of board accountability to News Corp shareholders?

The BSkyB bid was cancelled on July 13th 2011; on July 1st 2011, News Corp’s share price was at $18, but with the cancellation it slumped to $13.5 over July 2011 as the market discounted the shares because the company wouldn’t benefit from BSkyB’s cashflow. However, as the spotlight turned on the Murdochs, the market started to price in the removal of them from the board, and the share price rallied. Yesterday it was almost $20.

Transparency is profitable.

 


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14 Responses to “After more “wilful blindness”, it’s time to change corporate law”

  1. keith ferguson

    After more “wilful blindness”, it’s time to change corporate law, writes @CormacHolly: http://t.co/V4xmFTPx #Murdoch #Leveson

  2. Mrs Blogs

    After more “wilful blindness”, it’s time to change corporate , writes @CormacHolly: http://t.co/V4xmFTPx #Murdoch #PhoneHacking

  3. Shamik Das

    After more “wilful blindness”, it’s time to change corporate law, writes @CormacHolly: http://t.co/V4xmFTPx #Murdoch #PhoneHacking

  4. Cormac Hollingsworth

    There's just too much “wilful blindness”, it’s time to change corporate law http://t.co/9LL1jPId

  5. Pete Williams

    Good, topical comment re corporate responsibility & law (sad about lack of effective editing /proof-reading) http://t.co/9J7Y79Xj #Murdoch

  6. Peter McMahon

    After more “wilful blindness”, it's time to change corporate law http://t.co/e8g1nxxs

  7. BevR

    RT @leftfootfwd: After more “wilful blindness”, it’s time to change corporate law http://t.co/b3Q5wmce

  8. Anonymous

    …turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications.

    ==========

    Please please tell me it will apply to politicians. Then we can get the scum who’ve run up off the book debts.

  9. vkellywallace

    After more “wilful blindness”, it’s time to change corporate law, writes @CormacHolly: http://t.co/V4xmFTPx #Murdoch #PhoneHacking

  10. Anonymous

    It should apply to your 1% behind them.

  11. BevR

    RT @leftfootfwd: After more “wilful blindness”, it’s time to change corporate law http://t.co/b3Q5wmce

  12. sean

    RT @leftfootfwd: After more “wilful blindness”, it’s time to change corporate law http://t.co/b3Q5wmce

  13. JC

    If wilful blindness was a limit to public service, we wouldn’t have any politicians.

  14. H. O.

    RT @leftfootfwd: After more “wilful blindness”, it’s time to change corporate law http://t.co/fhqeQxgm

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