New Labour and the purpose of government

Does New Labour know what the proper functions of government are? That's the question raised by clause 156 of the Company Law Reform Bill.
The clause is drivel. Chris Gent is right to oppose it. The clause says:

A director must (so far as reasonably practicable) have regard to the likely consequences of any decision in the long term, the interests of the company’s employees, the need to foster the company’s business relationships with suppliers, customers and others, the impact of the company’s operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the company.

There are three problems with this.
1. The market - not the law - should impose these disciplines upon directors. A company that failed to consider the long-term, or which treated suppliers or customers badly, should suffer a falling share price and loss of profits.
2. Directors are not gods. They have limited rationality, attention and knowledge. They should therefore focus their brainpower upon upon what they can know - which is, or should be, how to make a profit, not how to care for the environment and "community."
3. There is of course a conflict between maximizing profits and (among other things) maintaining the environment or maximizing the interests of workers. But it is precisely the job of government to ensure that the institutions are in place to balance these interests.
So, if you think companies are damaging the environment, you should either tax the predation or (better still in theory) assign clear property rights to ensure that excessively costly damage doesn't happen. If you think workers are exploited, you should increase their bargaining power. And you should ensure that markets are as competitive as possible, so a company that treats customers, workers or suppliers badly loses business to one that treats them better.
And here we see the true cretinism of New Labour. It just doesn't see what politics is about. It's about how to ensure that people with conflicting interest can live together well. And this requires well-functioning institutions. Instead, New Labour seems to think  that conflict can be removed by the wisdom of enlightened leaders, be they in boardrooms or Westminster.

Comments

[Bob B]

Of course. The whole point of the clause is to be able to nail a company director one way or another.

The clause immediately reminded me of some job descriptions devised for senior posts in some northern local authorities that I've seen - the duties and responsibilities of the posts, as set down, are so wide ranging as to be beyond normal human capabilities.

The idea is simple enough - if for whatever reason the local political leadership wants to engineer a vacancy, it is easy to find a pretext for sacking without any come back.

[dearieme]

Bob probably knows more about these things than I do, but with New Labour you can usually explain a lot simply by the knowledge that they are dim and ignorant.

[Bob B]

But cunning with it? New Labour surely has all those academic advisers, not to mention the management consultants in tow. I mean, just look at the galaxy of Third Way gurus in academia. And Patricia Hewitt used to work for Accenture up to shortly before the 1997 election.

Believe me, the over-extended job descriptions for senior local government posts in some northern councils that I mentioned are not accidental. I strongly suspect a corresponding rationale has been applied across to company directors although I admit that I can also discern a rationale for the clause based on the woozy stuff of the 1990s about embracing all stakeholders. Something similar happened in the legislative template for the Bills put to Parliament in the 1940s nationalising the public utilities and basic industries where the appointed managing public corporations were directed to take due account of the "public interest" while the legislation failed to define what that was or how it was to be perceived. The implict conflicts of special interests within each nationalised industry and between the industry and its markets became only too apparent in the case of the mining industry.

However, it's a mistake IMO to believe that New Labour consistently applies an economics rationale for policy. What it does is to apply a political rationale that takes account of such economic considerations as are expedient. The distinction between the two modes became crystal clear in the extensive debate in the Labour Party and beyond over whether Britain should join the Euro. Blair, in particular, in that context was always careful to distinguish between the "political case" and the "economic case" for joining.

[Paulie]

If you hang around New Labour circles as much as I do, Bob, you'll know that the point at which you need a revolver is the point at which the word 'stakeholder' is mentioned.

In the old days, at least directors were responsible for something.

(I haven't worked out how to italicise the word 'something' here, but .... well, you know, imagine I did...)

[Robert Schwartz]

The clause is decended from similar clauses in American corporate laws. As backround information you should know that in the US, the laws governing private corporations (public limited companies in British parlance) are largely those enacted by the individual states.

In the late 1970s and early 1980s when takeovers by means of hostile tender offers became prominent, many US corporations defended themselves against hostile bidders by making political claims that take-over by some bunch of guys from out of town would harm the community wherein they were located. This claim was intended to spur legislators into action on behalf of incumbent management.

Among the laws enacted at that time were many like the following, which was adopted in Ohio (Revised Code Section 1701.59(E)):

For purposes of this section, a director, in determining what the director reasonably believes to be in the best interests of the corporation, shall consider the interests of the corporation's shareholders and, in the director's discretion, may consider any of the following:

(1) The interests of the corporation's employees, suppliers, creditors, and customers;

(2) The economy of the state and nation;

(3) Community and societal considerations;

(4) The long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.

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The important difference between the Ohio and the British statute is that the British statute provides that:

"A director must"

While the Ohio law provides:

"in the director's discretion, may consider any of the following"

The former is a command the later is an open escape hatch.

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I should note that not all American States adopted laws like the Ohio law. In particular, Deleware, the little state where most large American corporations are chartered, has not.