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Bevan  re-visited

540  23 November 2002   

Upon the collapse of ITV Digital its two promoters (parent companies Carlton and Granada) simply "walked away" and abandoned all the creditors of their own stricken subsidiary.  Now International Power, the parent of the collapsing UK power-generating company TXU, has similarly "walked away" - abandoning creditors for £2.78 billion.  Technically, this is legal - but it is an abuse of power.

When the Victorians invented the concept of limited liability, the aim was to protect wealthy individuals who had no expertise in the businesses receiving their investment.  Without that protection, the investment needed to further the industrial revolution would simply not have taken place.  But the situation today is wholly different.  Professional managers now rule the corporate roost, relegating shareholders (both individual and corporate) to a position of subordination, and often the subject of exploitation. 

The solution is to impose strict limits upon the rights of corporations and their management to walk away from their commitments.  In my international company law Manifesto, this is the Fourth Pillar of my Five Pillars of reform, and probably the most controversial.  This is what the Manifesto says -

• Liability for subsidiaries  When the concept of “limited liability” was developed in the 19^th century, the object was to protect wealthy individual investors against the risks of financial ruin, in the event of company collapse.  No shareholder could under any circumstances be called upon to pay more to the company than he had personally pledged to invest.  That protection has proved a key advantage in the development of modern economies, and should not be displaced or qualified.  There was however no suggestion that a company (i.e. an investor which was itself a “corporation”) should be able to create another artificial person, and hide behind its own subsidiary.  The extension of limited liability to artifical persons themselves, to “holding” or “parent” companies, has now become a vehicle for deceit and fraud, and should be discontinued.  Every company should be required to bear its due share of the indebtedness of any failed subsidiary.

I hope that you will spare a moment or two to read the rest of the Manifesto, at
Tame the Corporations - there is no more important subject.  And it falls to Labour, within the wider international frame, to take the initiative - we do not do that, nobody will.

What do you think?  Drop me a line

541   25 November 2002   

5,000 Bean Counters

It must have been quite a sight.  5,000 professional accountants met in Hong Kong this week, as the 16th World Congress of Accountants.  Disoriented by the failures of corporate control in American, they were in suitably self-critical mood.  The whole "auditing profession" was invented by the Victorians precisely for the purpose of monitoring corporate conduct, and that system has failed. 

But it would be wrong to blame the auditors. Nothing of importance will be achieved by tinkering with auditing systems.  The real problems like elsewhere - with the endemic secrecy of corporate enterprise, its autocratic character, its legal latitude to abuse power, to evade legal liabilities.  Faced with all these systemic defects of the company law system, auditors are powerless to double-guess those who abuse it.

Don't blame the Long Stop.  Blame the bowler, the batsman, the wicketkeeper, the slips - but don't shoot the man on the boundary.  And check out a full summary of the necessary root-and-branch reforms, at Tame the Corporations!

What do you think?  Drop me a line

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