Businesses are taking coronavirus bailouts while leeching wealth from their communities

This economic crisis provides a moment for change. Rebuilding our society after the lockdown has passed will require rewriting the rules on how companies work

Mathew Lawrence
Sunday 19 April 2020 14:07 BST
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A devastating public health crisis, Covid-19 has also triggered a profound crisis of the company, from vast multinational corporations requesting state bailouts to millions of small firms facing collapse. Longstanding weaknesses in how – and for whom, companies operate have been exposed, sometimes revealing limitations that stretch back decades.

Our urgent priority has been to rapidly scale-up healthcare capacity while putting the economy into secure hibernation. But our response to this emergency cannot ignore the limitations of the way we work. Instead, crisis must prompt transformation. We must reimagine the company so that it re-emerges as democratic, resilient and sustainable.

Since the 1970s, the corporation as an entity has been transformed from an institution focused on production into an engine of increasing wealth extraction. During this period a rising share of corporate earnings have been funnelled to shareholders and executive management.

Between 2011 and 2018, the 100 largest UK-domiciled non-financial companies paid out more than £400bn in dividends – the equivalent of 68 per cent of their net profits over the period, even as workers experienced the worst decade for real earnings growth for over two centuries and business investment remained sluggish. That same period saw an additional £61bn in share buybacks, along with an explosion of corporate debt – much of it used to boost shareholder income. And executive remuneration has become entirely disproportionate to performance.

According to our new analysis at Common Wealth, more than 700 executives at 86 of the largest non-financial UK companies held a collective £6bn in equity at their respective corporations, representing nearly £8.5m per director as of latest filings.

Now, thanks to the coronavirus crisis, many of these same corporations are requesting public money in the form of bailouts – and even more are already accessing the various business support schemes the chancellor has established.

EasyJet, for example, has secured a £600m loan from the Treasury and Bank of England’s emergency coronavirus fund, yet paid out £171m in dividends in March, including £60m to Sir Stelios Haji-Ioannou. The scale of the crisis, of course, makes this moment rather different to the great financial crisis of 2008. Public support is needed for many firms, but it must be conditional. Coronavirus has revealed a striking problem hardwired into our economy: too many corporations prioritise rewarding shareholders and management over investing to expand their capacity or to boost the real incomes of workers.

Workers, companies themselves and the public have lost out as a result. Corporate behaviour has left our economy ill prepared for crisis – less resilient as a whole, less productive, and with income, wealth and power intensely concentrated. What’s more, without intervention the crisis will likely result in a further consolidation in ownership, with distressed firms purchased on the cheap by large corporations and private equity, accelerating the concentration of wealth and power. We risk re-emerging to a business landscape stripped of all diversity, dominated by corporate behemoths.

This is not inevitable. The crisis has underscored, yet again, that the corporation is a social institution with multiple constituencies and made possible by public support. This is not just financially, but legally. The corporation is endowed by the law with extraordinary privileges to organise production. This vitally shapes how it operates and in whose interests. These rights and powers are publicly granted, legally defined and recodable; the corporation is not a space of private contract and property whose actions should be shielded from democratic intervention, but rather one undergirded and made possible by the state. We can then transform it from an institution of extraction to a generative entity: purposeful and democratically governed, where all its stakeholders have stake and a say in the wealth we create in common.

That will require an agenda for ambitious reconstruction: stronger conditionality for bailouts to safeguard jobs and improve company performance, and the creation of a social wealth fund through government borrowing while costs are low, buying a range of assets at rock bottom prices to deliver a windfall for the public when the economy re-emerges and a strategic lever to improve corporate behaviour. And it will require rewriting company rules. The voices of workers should be embedded in corporate governance, given new democratic powers to hold shareholders and managerial power in check, and ambitious carbon net zero duties created to drive a sustainable future.

All crises buckle and reshape the order of things. In what direction depends on politics and power. The immediate challenge is to rapidly scale up healthcare capacity while taking measures to ensure households and businesses can securely remain in economic hibernation for as long as the public health crisis demands. But it is critical we simultaneously prepare for an agenda of ambitious reconstruction for the post-crisis period: one that builds a new economy fit for human flourishing, rather than simply reinflating the inequalities and insecurities of the old. The transformation and democratisation of the company must be fundamental to this.

Mathew Lawrence is director of Common Wealth

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