The revelation that the chairman of the Independent News Group suggested in 2016 that Ireland’s largest media group should be run in the interests of its two largest shareholders Denis O’Brien (29.9%) and Dermot Desmond (15%), is a manifestation of what is wrong with company law and the relationship between big business and society.
Another recent example of the imbalance between leaders of big business and society is the relationship between Mark Zuckerberg and the giant company he controls, Facebook, and society everywhere in the world.
Some, like an Irish Times editorial (7 April), have criticised a weak Facebook board for not controlling Zuckerberg. But Zuckerberg controls 60% of Facebook with only 16% of the shares. For all his supposed idealism, Facebook is out of control. Who would have thought that one company could pose a threat to democracy? That it would make George Orwell’s “1984” look like a benign place.
Indeed many people were disturbed by the hostility to progressive ideas by the powerful Independent News and Media (INM) group, Ireland’s largest over the years and by its relentless excoriation of trade unionists and other progressives.
In the past companies were not run solely for shareholders but for all stakeholders, including employees, the community, the environment and society in general, but the shareholders did have ultimate control.
Under neo-liberalism, this was quietly ditched and the idea of “shareholder value” took over from the broader “stakeholder model” of the governance of many companies. This, in effect, meant that the management were in control. They since focused on increasing short-term profitability so that it (share options) would increase their own remuneration. This was one driver of the bank crisis.
Biggest is Best
But the idea that biggest shareholders should control the whole company must give pause to even conservatives who believe in so-called shareholder democracy; i.e. one share equals one vote. This is extraordinary and shows how out of touch some business leaders are. It also strongly demands immediate reform of corporate governance, here and internationally.
Inequality is rising, shown by the increasing share of national income going to the owners of capital over recent years while the balance, coming to the rest of us, is falling. The rules of the market, of business, of taxation, including company law are part of new enabling structures which have encouraged this to continue. Globalisation and laws are so imbalanced in being too pro-business that they are generating a vast new precariat as they simultaneously create the super rich 1%.
The Joint Stock Company Act of 1844 and Limited Liability Act of 1855 gave protection to the owners of companies and enabled them to grow over the years. The state provided a protection but the owners were to act responsibly.
Too many companies now pay little or no tax, shift jobs and assets around the globe to increase profits even marginally. Many pretend to be concerned with Corporate Social Responsibility (CSR is really PR) but wont pay basic taxes to educate even their own employees, never mind fund health services or roads.
Reform of corporate governance is overdue
International reform of corporate governance is long overdue to end the “shareholder value model” which is just a way of enriching the top executives who really control most companies. They do not care what happens to their community or to even their own companies after they have taken their staggering ‘rewards’ on departure.
We can see this in the obscene remuneration that sycophantic boards give to their colleagues and also with the recent actions of INM with an acquiescent board, with an exception of the then CEO.
Zuckerberg may have been an entrepreneur once, but he is now a predator, not just in his relentless pursuit in maximising his income and his $71bn wealth, but in threatening democracy.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.