Trust and confidence in our economic and financial institutions has collapsed. The last few years alone have witnessed accounting, banking and corporate tax scandals; environmental disasters; financial crises, fraud and money laundering at unprecedented levels. The pace and scale of the failures is intensifying and look set to increase in the future.
Colin Mayer, Professor of Finance at Saїd Business School, has published an outspoken book Firm Commitment on the breakdown of trust - its causes, consequences and what we should do to fix it. Mayer places the corporation at the centre of this failure of trust and at the heart of our current problems. He argues that the corporation is no longer serving the interests of society at large and has been hijacked by one particular interest group, its shareholders.
‘The corporation is arguably the most important institution in the world - an institution that employs us and invests our savings, and is the source of economic growth and prosperity around the world. Yet the corporation has lost its purpose and become dominated by short-term financial concerns to the exclusion of all others and to the detriment of us as its customers, employees and communities’.
This is not a theoretical debate but one of urgent importance for economies around the world. Mayer calls upon policy-makers and senior business figures to reform the corporation and he sets out a practical programme of measures focused on its ownership, values, governance, regulation and taxation.
He argues for:
• corporations to take responsibility for the consequences of their own conduct and to place control in the hands of long-term committed shareholders;
• clearly articulated values with truly independent boards of directors responsible for ensuring that those values are adhered to;
• tougher enforcement of regulation where corporations breach laws and threaten systemic stability but less intrusive regulation elsewhere;
• the use of the corporate tax system to align the interests of corporations with those of society at large.
Many of the most successful corporations in the world already display these characteristics. Tata, the Indian conglomerate, owner of Jaguar Land Rover and Corus Steel, is controlled by a foundation that is responsible for ensuring that its operating companies abide by the group’s principles and values. Bertelsmann, the media company, Carlsberg, the brewery, and Robert Bosch, the automotive components company, have similar arrangements.
‘We can no longer look to regulation as the sole instrument to control the corporation’ says Mayer. ‘Instead, re-establishing trust in the corporation is one of the most important policy issues of the 21st century. Without it, economic policies will fail, environmental degradation will continue and financial systems will collapse. With it, we can achieve far greater levels of economic and social well-being than at present.’