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The crisis behind the headlines of corporate scandals

The crisis behind the headlines of corporate scandals

How to tame corporations and bring them under democratic control is the question behind many a headline scandal. Corporations enjoy too many privileges and rights and too little responsibility and public accountability.

Consider the case of Google which reached a £130 million deal with HMRC to settle a decade long tax dispute with HMRC. This is about 3% of its UK profits, compared to a headline corporation rate of around 25% for that period. Facebook, the technology company paid corporation tax of only £4,327 on its 2014 UK profit of £28.5 million. This is less than the income tax paid by someone on average wage. Now the company’s executives have said that in future “UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales”. But why were the UK sales not booked in the UK, and why has HMRC not challenged such a state of affairs? Shareholders and directors of Google and Facebook got richer whilst the rest of us picked up the tab of providing education, healthcare and transport for their workers and a social infrastructure for the companies to use.

Naked corporate power is visible elsewhere too. Hitachi and Mitsubishi have been fined for price fixing. Pharmaceutical companies make excessive profits out of the National Health Service (NHS), and deprive many people of affordable treatment. Supermarkets squeeze farmers and other suppliers for extra discounts and jeopardise their survival. Meat companies showed no qualms about disguising horsemeat as beef. Companies like Volkswagen have been caught deliberately understating the carbon emissions from their vehicles. Companies say that staff are their biggest asset and then too many fail even to pay them the minimum wage. The rip-offs by gas, electricity, water, railway and mobile phone companies are legendary. Banks have been serial offenders mis-selling pensions, endowment mortgages, payment protection insurance, rigging interest and foreign exchange rates.

The present state of affairs is driven by two factors. The pressure to appease markets by reporting higher profits and the desire of executives to get rich-quick through performance related pay. No UK government has shown the desire to fully combat the abuses of corporate power or persuade company executives to serve broader society.

There is a mismatch between the world in corporations and outside. In the normal world, adults vote and enjoy freedom of speech. They can talk about social problems, abuses and remedies. There is no universal suffrage in corporations and they do not permit employees to speak according to their conscience. Employees have to sign gagging clauses and keep quiet about the consequences of corporate practices. No individual can easily get away with perpetration of frauds and practices which endanger other people, but once the same individual operates from corporations, s/he is not bound by the same ethics and responsibilities. For example, company shareholders can make vast sums from trade in weapons of mass destructions, tobacco products, fatty food and poorly maintained factories. But when things go wrong, shareholders have no personal liability and do not have to compensate the victims, all because they shelter behind a company. The tensions between the corporate and the normal world need to be addressed.

Any mention of reforms and democracy leads to howls of protests claiming that companies are private and that the state should somehow go soft on them. They rarely provide any persuasive evidence to support their claims.

The above examples show that there is no such thing as a private company because the consequences of corporate practices fall on the general public. It is not just products and services, but even the quality of air, rivers, seas, forests and biodiversity is affected by corporate practices. Unlike clubs and voluntary associations, companies simply cannot be formed without the due process of the law, and they rely upon the state and publicly-funded courts to resolve contractual and property rights disputes. Companies rely upon the taxpayers for bailouts and in the event of liquidation can dump their losses on to creditors and the rest of society.

A debate about the relationship between corporations and society is long overdue.