A failure to tame corporate power has been a disaster for society

'We live in a world dominated by corporations who control the supply of food, water, medicines, energy, transport, savings, pensions, deadly weapons and most other things.'

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

We live in a world dominated by corporations who control the supply of food, water, medicines, energy, transport, savings, pensions, deadly weapons and most other things. Through the veil of incorporation, companies are licensed to engage in harmful practices, which ordinary people would not be able to.

Consider the example of a person who decides to manufacture and sell deadly products and services which are certain to kill or harm people; or decides to dump a lorry load of raw sewage into rivers. That person is likely to be arrested, prosecuted, imprisoned bankrupted and become subject of public opprobrium. Yet corporations engage in such practices on a daily basis and rarely face effective sanctions.

In pursuit of private profits, corporate boardrooms have long manufactured deadly diseases. The mad cow disease is one such example. Tobacco products are another even though overwhelming scientific evidence shows that they bring early death to smokers.  Despite numerous regulations, tobacco companies find ways of marketing the addictive products. With profit margins of some 68%, the tobacco industry is attractive to stock market punters.

The price is paid by the people. Worldwide there are some eight million deaths from smoking each year, and 75,000 are in England. 7 out of 10 cases of lung cancer are from smoking. 506,100 hospital admissions in England are attributable to smoking. The life expectancy of smokers is around 10 years shorter than for non-smokers. Around 90% of new smokers are addicted by age 25 and become lifelong contributors to corporate profits, high executive pay and dividends for shareholders. Tobacco companies are expected to report revenues of US$812,999m in 2022.

For a long time, the UK rejected liberalisation of gambling but governments keen to appease corporations eventually gave-in. The Gambling Act 2005 opened the floodgates. The odds are always in favour of corporations but people chasing dreams are recruited with slick advertising and addictive games. Addicts spend their earnings and savings on gambling, inflicting hardship on their families. Around 7% of the population of Great Britain are negatively affected by someone else’s gambling.

Many suffer from disorders, depression, anxiety and mental health problems and can’t hold down jobs. There are around 409 gambling related suicides in England each year. The annual economic burden of harmful gambling to the UK is around £1.27bn, but it is a bonanza for corporate controllers. The chief executive of Bet365 has collected nearly £300m in salary and dividends. Not for the first time, betting operator 888 has been fined £9.4m for its social responsibility and money laundering failings, including not effectively identifying players at risk of harm.

Despite statutory commitments, water companies continue to dump raw sewage into rivers and create health hazards. Thames Water recently dumped two billion litres of raw sewage into rivers in two days. Since 2010, water companies have paid £405m in fines, but that has become just another cost of doing business. In 2021, they made £2.8bn in operating profits. Since 2010, the companies have paid some £16.8bn in dividends. Nine water industry company chief executives collected £15m in pay and bonuses last year even though the number of times their firms pumped raw sewage into seas and rivers rose by 37%.

The UK has become a global centre for illicit financial flows. The government has a history of covering-up money laundering by banks even when they have publicly accepted responsibility for “criminal conduct”. Recently, NatWest became the UK’s sole bank criminal conviction for money laundering failing. It was fined £265m. This has not followed by prosecutions of any directors, whose remuneration was presumably augmented by profits from such illicit practices. There is no clawback of their remuneration. When asked, the response is that “The Government does not intend to introduce legislation to enable claw back of remuneration from directors of entities found guilty of money laundering.”

The veil of incorporation enables corporations to indulge in practices which a natural person would not be able to get away with so lightly. Markets and investor have not sought to curb anti-social practices. Their main concern is profits and dividends, at almost any cost. Limited liability of corporations shields their executives from retribution and large amount of corporate lobbying is devoted to ensure that unwelcome laws are not passed. Companies disarm critics by publishing glossy brochures with mantras of social responsibility, but rarely explain deaths, disabilities and harms caused by their products and services.

Shareholders collect dividends and do not face any personal consequences for the harms inflicted on consumers and society. Their liability is limited to the extent of paid-up share capital and they have no incentive to curb predatory practices which boost their dividends and returns.

Taming corporate power is a major issue of our times. A start can be made by ensuring that limited liability is a privilege for a fixed period only, renewable upon evidence of socially responsible conduct. Directors need to be held personally liable for serial predatory practices. Corporations need to be democratised, with employees, customers and other stakeholders acting as proxies for society and voting on executive pay and other corporate plans.

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