Draw Breath

Thanks to Robert Goddard I just noticed that the Programme for Government contains a commitment to “put the principles of the Combined Code of Corporate Governance (see also trusty old Wikipedia) on a legislative footing for all banks, public companies and state-sponsored bodies,” specifically with regard to the following:

• Board composition and independence
• Segregation of CEO and Chair
• Clear definition of executive and non-executive responsibilities
• Audit committee composition, independence, role and function
• Responsibilities and composition of board committees
• Segregation of committee chairs
• Risk management
• Selection of non-executive directors
• Sanctions for non-compliance

The combined code is the listing code for the London Stock exchange and has, for better or worse become a de facto best practice manual for business governance in the private, voluntary and public sectors. Based on a series of reports, themselves largely responses to problems identified during crises and scandals, the code is designed to prevent tyrannical bosses from running companies as their personal fiefdoms. So it sets up boards to be tough in their scrutiny and institutional investors to be active in their oversight. Companies don’t have to comply with its stipulations, but if they don’t they have to explain why they don’t (and explaining rather than complying is not necessarily consequence-free, as Stuart Rose of M&S has discovered).

But this is interesting in itself: how precisely will the code be introduced into statute? Presumably the ‘or explain’ bit will disappear and companies will simply have to comply. Also, this will lead, that I can see, to a far greater shakeup of Irish company law than the current bill envisages. Whereas the current bill doesn’t go as far as the British 2006 Companies Act in bringing directors’ duties into statute (see the British section on duties here and the proposed Irish section here), the Programme for Government proposals will go much much further, including stipulating that non-executive directors will have difference duties (in addition?) to those of executive directors.

So what to make of this? Well, I’m in a cynical mood so I’ll call this a political gesture that’ll never see the light of day.

I don’t for a minute expect that we’ll see legislation enacted along these lines: Ireland seems repeatedly to push itself to the edge of even slightly diverging from having a cut-price British corporate governance system and then draws back. This is what happened with the ill-fated Directors’ Compliance Statement,  which started life, in the Companies (Auditing and Accounting) Act 2003 as a version of the American SOX section 404. It never happened: having been introduced into law, the Compliance Statement was subject to a lobbying campaign from the Institute of Chartered Accountants in Ireland and others on the grounds that it would make doing business in Ireland too expensive, was bounced to the Company Law Review group by the minister, the CLRG asked – get this – IBEC and the ICAI how much they thought it would cost businesses and they said ‘ooh, loads,’ so it got watered down into essentially a statement of whether directors think they are doing enough to keep an eye on the company’s liabilities rather than a test of whether or not they are. When you hear anyone suggesting ramping up oversight vis-a-vis Irish businesses, this is the context you should place it in: well-organised and, er, well-connected business lobbies plus terror at the highly plausible idea that businesses might just pack up and go somewhere where regulatory costs are lower and political compliance is higher.

P.S. Alan McDonnell in the Sunday Business Post has an interesting piece on the combined code section in the Programme for Government but I get the feeling that, while he’s right (there’s no point in expecting enforcement of corporate governance along the combined codes lines without active institutional investors) I’m not sure that he’s hit on the most pertinent point.

OK, so apart from being glad that the Atlantic Ocean continues to expand, I do have one question about the healthcare reform ‘debate’ (if you could call it that) in the US. Why is the business community not lobbying like mad for universal state healthcare? I’m sure I’m missing something and would love to know what it is.

After all, it strikes me that, at least at the high end, American health insurance tends to be covered by American businesses, universities and the like. Why don’t they want to offload some of their costs to the state?

I assume that small businesses currently don’t provide healthcare insurance at all, so they are concerned at being taxed to provide a public plan, but why aren’t larger businesses lobbying in favour? Maybe American society never cottoned on to the flip side of Offe’s paradox: that welfare states are good for capitalism because they regulate societies through times of crisis.  But why aren’t did business never make the calculation to nationalise these particular costs?

Answers in a postcard-shaped  comments box please. I have a sneaking suspicion that a good answer would be longer than this question.

I’ve spent the last few months combining my time between reading critical theorists on finance and reading financial theorists on finance, both of which I find strangely entertaining and interesting. I have an empty empty life.

Anyway, reading Andrew Leyshon and Nigel Thrift’s ‘The Capitalisation of Almost Everything’ (published in Theory Culture & Society in 2007, but a pdf draft is here) I came across this very interesting point. Leyshon and Thrift are interested in countering arguments that financialised capitalism is pure speculation. Rather, it is connected to predictions about more or less definite income streams (from mortgages, rents, PFI contracts etc), all of which can be bundled up and sold on as what used to be thought of as low-risk bonds.

Part of the article is devoted to Northern Rock and its switch from building society to aggressive mortgage retailer. As with everyone else in the mortgage game in recent years, Northern Rocks’ business model was based on the debt-as-revenue model involving borrowing in the wholesale banking market in order to sell mortgages that could be repackaged and sold on as bonds. Anyway, this is where sponsorship of Newcastle United came in:

The change in the business model of the bank, from marketing for depositors to fund its mortgages, to marketing for investors to buy its securities, was symbolized by Northern Rock’s sponsorship of the English Premier League football club, Newcastle United, which advertises the bank’s logo on the chest of the team’s strip. This sponsorship was designed not to link the organization to the area in which both it and the football team are based, but rather to raise the profile of the bank’s brand in Asia – where Premier League football is keenly followed – because the financial markets of that region are where it sold a large proportion of its securitized mortgage bonds, which are based on the monthly repayments of UK home-owners.

I’ve been asked to give a ten minute talk (as one of a panel of three) in QUB’s School of Sociology tomorrow on the Global Financial Crisis. What can you cover in ten minutes? Not much, I’d say, but my brief is to include something about how we study societies. So I’ll make two points: Read more…