The US Business Round Table made a big contribution to mankind by announcing that “Shareholder Value” was no longer the keystone gospel of business according to the Messiah Milton Friedman. Now their new Messiah is JP Morgan’s CEO Mr. Jamie Dimon who, as Chairman of the Round Table, victoriously claimed:
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”
Corporate Governance is all about trust, and that exists if a corporation is sustainable, transparent, and works well when the company is run by a board and a CEO who shares these fundamental commitments to stakeholders – meaning shareholders, workers, customers, sub-contractors and suppliers and society at large.
But a company can easily lose this trust and be destroyed if the board is weak. Mr. Risto Siilasmaa, the present chairman of Nokia’s board, claimed in his book “Transforming NOKIA” that the former chairman of Nokia, Mr. Olilla was allowed too much leeway by a weak board that he dominated. Without those checks and balances part of Nokia collapsed…
Big US companies like Enron and Andersen Consulting also collapsed, like one of the biggest accounting frauds that came later in 2002 called WorldCom Inc. Its former CEO, Mr. Ebbers, was given almost complete power over the company, without the board of directors exercising any apparent control over his actions. They allowed lavish compensation, more than $400 million was granted in “loans” from shareholders to Ebbers!
These stories are from almost 20 years ago and what have we learnt? Not much when you look at the Lehman Brothers bankruptcy and ensuing financial crisis in 2007. The world’s biggest banks were poorly managed and exposed to huge losses, only to be saved by compliant governments and taxpayers. Companies and countries stumbled for the next 10 years around the world.
Very little has been learnt since then. We are still hesitating over Climate Change, we are still think it is fine to privatise profits and socialise losses in banking and finance, while bankers and CEO’s receive huge salaries, and workers and others are squeezed or loose their jobs.
We believe in Western democracies, but can we still call them that? We know that dictators stifle opposition with imprisonment and violence while democracies apply the “Rule of Law Test”. This test says that you need to have nation with 3 independent parts – the Government, Parliament and the Judiciary. They are constructed to ensure that there are checks and balances so leaders do not break the law or act recklessly. Balancing all three is hard, but such democratic solutions have allowed Europe and the USA to prosper over the last 100 years.
But now we have Trump and Johnson in two historically democratic countries who now appear to be destroying the Rule of Law as we have commonly understood it.
When a law student to become a barrister in London some 50 years ago, I read books on Criminal Law, Tax Law, etc., and on Constitutional Law. This last book was strange because it only set out very few specific written laws dealing with the UK’s Constitution, that body of fundamental principles and laws that govern a state. Britain instead relies on an unwritten set of traditions and conventions that have treated a sovereign Parliament as the supreme law of the land. These conventions and traditions can change with the world, and the world changes fast these days with Facebook, Google and Netflix.
In September 2019, Boris Johnson took control of Parliament by closing it down because he said that he wanted to concentrate on writing the Queen’s Speech with which the Queen traditionally opens each new session of Parliament. That speech sets out the government’s program for the coming year or years. But we all now know that Johnson’s real reason for closing Parliament was to stop the debate about Brexit. He has even said that he would push through Brexit without a deal even if Parliament passed a law that tried to stop him doing so.
Closing Parliament dishonestly to stop it exercising checks and balances or saying that you will break the law, means that the Prime Minister is behaving like Ebbers, who is currently spending 25 years in prison. Mr. Johnson has ignored the Rule of Law in the UK, or in another sense, it can be said that he has ignored good Corporate Governance and put the nation a risk of loss. In other words, Brexit is all about really bad Corporate Governance because Parliament is the ultimate decision-making body for such momentous decisions, not a people’s referendum, especially one that was organised as an advisory referendum, plagued by lies and disinformation and financed by shady individuals and foreign governments. So perhaps Mr. Johnson should be sent to prison not just for rotten Corporate Governance, but more seriously, for repudiating democracy.
This article was first published in Forum för ekonomi och teknik in Swedish in October 2019.
