Tuesday, January 31, 2006

Byers Joins Ruination Drive

Tax 'n' Spend isn't the only way governments can burn our money. They can also impose costly and onerous regulation, particularly on business. The Company Law Reform Bill (780 pages, 885 clauses) is set to do just that.

When first introduced it was trumpeted as a simplification, designed to slash red tape and save British companies £250m pa. But having studied the detail, the corporate world is now seriously alarmed, especially about Section 156. It says that, in fulfilling his duty to shareholders:

"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."

This may all sound well-meaning, but the clause represents fundamental changes to a director's responsibilities. What's more, in the words of Baroness Noakes, "The interests of these stakeholders conflict and there's no hierarchy in the bill - no explanation of which are more important. There's also no explanation of what is meant by 'success' - that is a very subjective term."

It's the incorporation into British law of what's known as CSR- Corporate Social Responsibility- a woolly stakeholding notion of company objectives that's been floating around in one guise or another for 10-15 years. The risks to company health and overall economic dynamism are obvious. As the the immortal Milt put it:

“There is one and only one social responsibility of a business ― to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

As always Milt puts is succinctly: we might want to add that companies need to consider long-term as well as short-term profits, which can lead them to eschew the fast buck in favour of public reputation. But the point is overall financial return to shareholders should be the driver, within the limits of the law.

Once politicians start insisting in law that company directors weigh nebulous aspirations for "a better world" against the cold hard reality of making money, our directors become no more use than...well, politicians.

And if you want absolute proof that I'm right, consider this from the FT:

"Stephen Byers, the former trade and industry secretary, is said to be sympathetic to calls in a Commons motion from 125 Labour MPs for directors "to identify, consider, act and report on any negative social and environmental impacts" from their companies' activities."

And you thought Byers had a stake through his heart.

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