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New
Living Diary
Index
New participatory democracy
Taming
the Corporations
My Welsh socialism
My New Socialist
Settlement
Globalise the left!
Bevan re-visited
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item0041A 710, 710A, 711
710
5 May 2003
public companies, public purpose
 There is change afoot,
in the corporate sector. Not in the conventional profit-based
shareholder-owned trading corporation (that remains impervious to radical
change) but in the third sector. And I have distinctive experience of
this sector over the last five years, as Director and Trustee of the trading
leisure charity Aquaterra Leisure.
Trading charities are
expanding, in the leisure, educational and medical sectors. The Government
has promised to enact legislation (probably by mid-2004) to permit the
formation of community interest companies (CICs)
protected by law from privatisation and legally committed (like trading
charities) to the pursuit of public interest objectives. Foundation
hospitals will also constitute a new form of public interest trading
company, with a variety of new constitutions. And Charles Clarke is likely
to revisit the idea of clustering schools together in new forms of
public-interest educational corporations. With the creation of CICs, there
is likely to be a wave of new initiatives in transport, sports provision,
community services, prison provision and management.
The way ahead is not yet
clear. For instance, the key issue of Board selection and Board composition
have not been satisfactorily addressed, in any of these sectors. It is
still too easy for Trust Boards to become self-serving oligarchies, with the
power to replace themselves, as well as to exclude unwelcome candidates. In
the case of Foundation Hospitals, key issues remain as to the composition of
the electorate and the balance of nominee and elected Trustees. We are
witnessing the emergence of new forms of democracy, and their refinement
will call for great judgment and sensitivity.
But I nevertheless
believe that public interest trading - by new, dedicated corporations
guaranteed by law to remain in public hands - constitutes a new and
distinctive business model. It is one capable, within the service sector,
of challenging the private-profit model, and displacing a swathe of local
authority functions, previously configured in top-down form. And I believe
the Government is right to create the framework for the extension of this
phenomenon.
Let me explain just why
this form of trading it is so distinctive. The company’s motivation, from
Trustees to the most junior staff, is one of public service
–
and not of profit maximisation. We enjoy trading successfully; and we
derive great satisfaction from getting our market assessments right. We are
prudent, even frugal, in incurring costs. We are competitive – indeed
we enjoy the cut-and-thrust of competition. But no private shareholder
has any claims upon the company’s surpluses, which are all reinvested in new
facilities in accordance with our trust.
No taxman takes away the
surplus, by way of Corporation Tax, or Council Tax. No fees or other
rewards are paid to Board members. That whole ethos commands the confidence
of those who deal with the company because the principle is firmly embedded
in its charitable status. That acts a massive reassurance to all our
trading partners: the jurisdiction of the Charity Commission constitutes the
foundation which our distinctive trading position. .. It also generates a
golden thread of mutual confidence which runs through our company life – it
is good for personal relations, for management-staff relations, and for our
success is minimising staff turnover.
The second factor is a
manifestation of the first. It is the company’s commitment to
social
initiatives, to promoting social and communal inclusion, in ways that
private-profit traders simply cannot justify, and do not match. The Board
knows that it will be judged, not by its trading surpluses, but by the way
those surpluses are deployed. There is a strong urge to experiment, to use
company surpluses to break down barriers, promote new initiatives. Directors
and staff can and do take pride in the company’s social ethos, and new
ideas are regularly brought forward, to further these aspects of our
programme.
Then there is the
ability of such a company to attract and retain staff, in competitive labour
markets. The company is able to offer better-than-market rates of pay and
conditions of employment, thus in part reinvesting surpluses in their
improvement. But it is also true that a trading charity (unlike the
private-profit corporation) is well-placed to prevent runaway executive
remuneration. Many senior managers could earn higher salaries elsewhere, but
are attracted by the social ethos of the company, its values, its openness.
And the trading charity
also offers a distinctive solution to the problem which is wracking the City
and all major private-profit corporations. Charities are commonly
characterised by a complete separation of power and function between
executive management and a non-executive Board. For the private sector,
many of its problems are explained by top executives who have taken over and
dominated the Boardroom, making it difficult for the non-executives to
exercise any distinctive influence, whether by way of restraint or stimulus.
With a trading charity, with a clear differentiation of role and legal
responsibility between the “Trust Board” and the management, the system of
checks and balances is much more effective. In a sense, the system
resembles the traditional local-authority structure, before the Cabinet
reforms of the 2000 Act, with a clear differentiation between lay Directors
and professional management. All systems of power, however modest, are
improved by the availability of “checks and balances”.
The trading charity is
distinguished from its private-profit competitor in quite a different way.
Its written constitution (Memorandum & Articles, or other Trust instrument)
is of central day-to-day importance. That is because it sets out,
effectively in the form of a mission statement for everyone to see, the
company’s public service functions, quite precisely and comprehensively. In
the private corporate sector, company constitutions have become an
embarrassing formality, meaningless even if consulted.
But not for the trading
charity. Everybody can check up on the public documentation and can hold
the company to account for what the company does. The trading charity model
is open, transparent. It has the great virtue of being accessible not only
to experts but to interested members of the general public. That is another
form of check-and-balance, and one with the greatest possible long-term
potential.
And in terms of
transparency, there is another factor which is undoubtedly attractive to
other public service partners, local or public authorities, or other public
interest companies. The trading charity has nothing to hide. Trading charities can – and do – offer “open book access”
to their records, to local and other public authorities. The private
corporate sector is riddled with the distortions of secrecy and
confidentiality. The trading charity model is not, because private-property
and the private-profit motive have been driven out of the system. This
offers a new way ahead for a wide range of public-service trading systems.
Do you
have any experience of public interest trading, for or against? Drop me a line
<
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710A
5 May 2003
Blair's
modernisation
could go seriously wrong
A leading NHS expert
Dr Alyson Pollock launched a vicious attack on the Government's foundation
hospitals scheme, in
The Guardian.
Her thesis is that the changes are merely a front for the wholesale
conversion of NHS systems to private-profit motivation - hers is a good ol'
Old Labour rant. And I agree that such risks do arise, with the
process of externalisation to free-standing corporations.
But if
- in both the NHS and many other
sectors - these constitutional changes can be effected properly, the gains
to our society would be huge. Hundreds of thousands of our
fellow-citizens would be admitted, for the first time, into the corridors of
power, able to exercise influence in the governance of their own
communities. Our communities would be the livelier, the more
sensitive, the more politically aware, and the better equipped to handle
continuing change.
I concede to Allyson Pollock, however, that
it is a Big If... These are
the assurances that need to be built into the new systems -
- That the
corporations themselves are guaranteed in perpetuity to
remain public benefit corporations, comparable with the security of
charities or the future community interest companies. This absolute
assurance will be a key factor in winning popular support for these
initiatives. The privatisation of the Building Society movement, and
the Trustee Savings Bank, has left deep emotional and political scars on
many people, and not just political activists.
- That lay citizens are elected to the
public-company Boards by a wide and involved electorate, drawn from the
Electoral Roll itself. The system must constitute a genuine one of
checks-and-balances. Professional politicians should be debarred
from standing as Directors: with their salaried privileges, they would
destabilise the whole system. The principle of "volunteering for the
electorate" is, I believe, perfectly sound democratically - all ballots
would be on paper, by postal persuasion and postal voting. But the
drive to involve a broad electorate would be fundamental to democratic
success.
- That elected citizens must be accorded
real power, exercising a real democratic control of the bodies to which
they are elected - I am very apprehensive about the NHS plans, which are
said to "give more power to the local professionals" - that
is the last thing we need, for they are as much a part of the problem as
of the solution. The proposed 40% Foundation Hospital Board
participation by the professionals is absurd: there should be no
professional Board members at all. The professionals should advise
the Board, and would carry the most enormous authority in that capacity.
We need greater democracy, not stronger professional conspiracies against
the laity. In my view no employed professional should be admitted to
the company Boards: there should be a fundamental division of power and
function between elected Directors and salaried officers - nothing less
will do.
- That public companies should not be
confined to a single geographical territory, but should be free to compete
across the whole of the UK - competition is good (it is the private
profit motivation that is bad, in these public services) and the lack
of competition was one of the crippling restrictions of municipal trading,
which has historically remained stubbornly territorial, reinforced by
local government law.
These are tough tests. But with these
principles in mind, Labour supporters should be prepared to venture upon
that great democratic experiment.
Where do you stand on this programme of "modernisation"? Drop me a line
<
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711
5 May 2003
Old Director, New
Director
IPPR Director in 1992 was the redoubtable
leftwing intellectual James Cornford, with whom I
dined last week in London. Today's Director is Matthew Taylor of the
Incisive Mind - you may recall how impressed I was with him, at the
last Labour Party Conference.
And Matthew Taylor, writing in this week's New
Statesman, heralds "Baby Bonds" as the early signs of a profound
socialist revolution. I say Yes, but...
I do agree that
Labour is
right to embark upon the redistribution of capital, without
continuing to rely on the redistribution of income. And
I do agree that
Gordon Brown has launched a Grand Theme of future politics. So to that I
extent,
I am with Matthew Taylor.
But I have three points of disagreement.
- First: The argument has nothing to do with the overall case for material
equality. Taylor confuses two old-radical themes, namely
(a) capital
adequacy - having enough savings to get through the vicissitudes of life
without disaster - three-acres-and-a-cow, home-ownership and all that jazz -
the distinction between the "cushioned classes" and the majority of our
fellow-citizens - and
(b) material equality - the
quantitative "levelling" process
which has always earned for revolutionaries the opprobrium of the
bourgeoisie.
Gordon Brown
is no revolutionary. His
Baby Bonds
(or Child Trust Funds, to use the proper term) come from Stable A,
not Stable B. They are designed merely to lift citizens into a
position of capital adequacy - this is not about re-designing the ladder of
wealth distribution - the middle-classes can rest easy, with Gordon at the
helm...
- Second, MT envisages a
"managed fund", upon which the individual will be able to "draw
down", with public-authority permission, for certain legitimate purposes.
Now: it may be possible to control certain flows of expenditure
(Individual Learning Accounts, when they are re-introduced as they surely
will be, could be limited to the payment of fees and other "learning
costs". But generally, the capital distributed must be available for
the individual to spend as he or she pleases - it cannot in principle be a
managed fund at all. That would deprive it of its essential value,
in improving the security and well-being of the individual. The MT
model of capital redistribution is thus fatally flawed.
- Thirdly, if the system is - as I say it
must be - a free-to-spend system, there will remain an
acute need for humane and sensitive income-redistribution measures as
well. Our fellow citizens will still suffer bad luck, addiction,
poor judgment, accident and health hazards - they will still need income
support. Capital redistribution will not displace income
redistribution: it will reduce its incidence, but that is all.
But be in no doubt. We
are here in Big Idea Territory, just as
we are with Foundation Hospitals
and the new Community Interest Company...
Hold on to your hats, for an exciting ride.
Do you follow my drift? Drop me a line
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