Other People’s Money – George Monbiot

www.monbiot.com/2018/05/29/other-peoples-money/ Other People’s Money
29th May 2018 Share21
Make bosses pay for the disasters they cause
By George Monbiot, published in the Guardian 24th May 2018

Once more, they walk away. The senior bosses at Carillion, like those at RBS, Northern Rock and a host of other corporate zombies, went home to count their undiminished millions. The pain they inflicted was felt by others. Reckless greed paid out again.
The Commons report on this fiasco is one of the most damning assessments of corporate behaviour parliament has ever published. But it’s still pathetic. While it scorches the company’s executives and board and laments the weakness of the regulators, it scarcely touches the structural causes that make gluttony a perennial feature of corporate life.
The problem begins with an issue the report does not once mention: the extreme nature of limited liability. To allow the owners of a limited company to risk nothing but the money they have spent on shares is to grant them free, uncapped indemnity against the risks they impose on others. It’s the equivalent of permitting drivers to take to the roads without buying insurance, knowing that if they cause a crash they will carry no more than the cost of replacing their own car, regardless of the expense, injury and death they might impose on others.
The current model of limited liability allowed the directors and executives of Carillion to rack up a pension deficit of £2.6 billion , leaving the 27,000 members of its schemes to be rescued by the state fund (which is financed by a levy on your pension – if you have one). This indemnity permitted the owners of the company to walk away from the £2 billion it owed to its suppliers and subcontractors. The same free pass landed the cost of rescuing the public services so foolishly entrusted to this company back on the government.
A recent study exposes a direct link between the generosity of the limited liability regime and the corporate incentive to dump costs on other people. In 1998 the US Supreme Court ruled that parent companies were liable for only narrowly defined harms caused by their subsidiaries. The study reveals that in the aftermath of this decision, toxic emissions by subsidiary companies in the US rose by an average of 10%, as they cut investment in abatement technologies.
Limited liability not only allows companies to act recklessly with regard to the interests of others – it obliges them to do so. Directors have a fiduciary duty to use all legally available means to maximise shareholder value. Limited liability compels them to externalise risk.
There is no way that fossil fuel companies could pay for the climate breakdown they cause. There is no way that car companies could meet the health costs of air pollution . Their business models rely on dumping their costs on other people. Were they not protected by the extreme form of limited liability that prevails today, they would be obliged to switch to clean technologies.
Various estimates put the cost that businesses dump on society at somewhere between 4% and 20% of GDP . In other words, it exceeds the rate of economic growth. Were such costs internalised, the economy would have to be run on an entirely different basis. Human health and the survival of the natural world would come first; corporate greed would come last.

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