Good Corporate Citizen or Citizen Kane?
Barclays “is a tax avoidance factory” asserted Lord Oakeshott, Lib-Dem peer, at the end of February 2012, as the Government moved to close off two highly-lucrative schemes designed to save two of Barclays’ clients paying £500 million in UK taxes (http://www.thisislondon.co.uk/news/uk/barclays-is-a-tax-avoidance-factory-7497988.html). There are no possible excuses here either, since Barclays had signed a code of conduct on taxation that these transactions explicitly looked to dodge. Poor Barclays, and poor Bob Diamond, its beleaguered CEO, who is doing all he can to revive his own and Barclay’s reputation after its shredding in recent years. A year ago Mr. Diamond gave the inaugural BBC Today Business Lecture. In it he told the story of his visit to Washington just after the financial crisis of 2008 when a senior economic advisor to the White House asked him: “Do you think banks can be good citizens?” While Diamond was thinking about his answer the advisor added: “If the answer is “yes”, think about the fact that no-one will believe you.” He doesn’t tell us what he actually answered, but one thinks it should have been an embarrassed silence (http://news.bbc.co.uk/today/hi/today/newsid_9630000/9630673.stm).
Three years on and Bob tells his Today audience that: “Banks must serve a social purpose and meet a real client need”; and that: “rebuilding trust requires banks to be better citizens”. Forgive my cynicism, but around the same time he was also bleating to the Treasury Select Committee that: “the time for bankers’ remorse [over the financial crisis] is over.”
In the light of the latest press stories it seems harder than ever to believe that Barclays could be seen as a good corporate citizen and Bob as anything other than just another modern-day Citizen Kane. Indeed there has been speculation in some quarters that Barclays Bob cut the controversial bailout deal with the Qatari and Abu Dhabi states at a higher rate than that offered by the UK government specifically, in part, to avoid the government as a meddlesome shareholder so that such fiscal underhandedness could go unnoticed (http://www.leftfootforward.org/2012/02/warnings-about-bob-diamond-barclays-tax-dodging-greed-were-there-in-2008/).
Lord Oakeshott is very clear on Twitter (29/02/2012 @oakeshottm), saying: “If Barclay’s are good citizens, my name’s Bob Diamond.”
This brings into much sharper relief the irony of three related events which go to the heart of the current issues with Big Society and corporate citizenship. Firstly, we had Francis Maude talking to the Institute of Directors about Big Society and the City, saying:
“Government is committed to helping businesses do well by reforms to taxation, regulation, public spending and public procurement to encourage enterprise and growth…In return we would like a commitment from businesses to do good. To use your skills, resources and dynamism to help us tackle Britain’s social problems from worklessness and deprivation to troubled families and community breakdown.” (http://www.cabinetoffice.gov.uk/news/francis-maude-speech-big-society-and-city)
Secondly, we had David Cameron at the beginning of the same week attending a Business in The Community (BiTC) Communities Summit and defending big business, saying:
“In recent months we’ve heard some dangerous rhetoric creep into our national debate…that wealth creation is somehow anti-social, that people in business are out for themselves.”
“Business is not just about making money….it’s also the most powerful force for social progress the world has ever known.”
He must have been spitting into his cornflakes when the Barclays debacle came to light.
And the irony doesn’t stop there, as on the very same day as Barclays’ underhand tax-dodges were unveiled, riot police moved in to clear the Occupy movement’s camp from outside St. Pauls’ Cathedral whose clergy had acknowledged that the #occupy movement (an international protest primarily directed against economic and social inequality) had made them "re-examine important issues about social & economic justice". Another example of trying to brush the inconvenient truths under the carpet?
So what to do? We are in the middle of the worst economic crisis of a lifetime. The voluntary sector is facing unprecedented demand for services coupled with unprecedented cuts to its government funding. And the only ones seemingly still carrying on regardless are the banks and big corporations.
Bob believes that the banks can still save us. But in order to do so he believes that banks must take more risks; that economic growth depends on it. Of course banks do and must take risks as part of their business. But risk must be regulated, and aligned with reward in the right way and for the public good. Only a few months ago, Andrew Haldane, Executive Director of Financial Stability at the Bank of England, gave the Wincott Annual Memorial Lecture in which he said:
“Banks are special. That has long been recognized in the design of their ownership, governance and regulation. This status can have strange consequences. The historical distribution of risks and returns in banking is one. For a century, both risks and returns have been high. But while the risks have typically been borne by wider society, the returns have been harvested by bank shareholders and managers.” (http://www.bankofengland.co.uk/publications/Pages/speeches/2011/525.aspx).
Haldane goes on to give an incredible illustration of how far massive risk-taking was being rewarded: “In 1989, the CEOs of the seven largest banks in the United States earned on average $2.8 million. That was almost 100 times the median US household income. By 2007, at the height of the boom, CEO compensation among the largest US banks had risen almost tenfold to $26 million. That was over 500 times the median US household income.”
That banks were considered “too-big-to-fail” and too powerful in society’s rankings can be illustrated by the fact that in 2007 the assets of the big 3 UK banks constituted 200% of the UK’s GDP (Haldane, 2011). The power balance was fatally tilted in their favour. They could literally do whatever they wanted; and what they seemed to want to do, were driven to do was to take ever bigger risks. The narrow focus on equity, and the machinations of the stock market, Haldane argues, has ironically led to massive inequity.
However the ‘specialness’ of banks cannot mean that they are above the law, above regulation, above suspicion or question. Finance Mail recently counted over 550 offshore subsidiaries belonging to Barclays, Lloyds and RBS, a fact about which Bob Diamond claimed little knowledge in his appearance before the Treasury Select Committee (www.newstatesman.com/print/201102240018). Now is the time for the British government to stop quaking before the mighty banks who threaten to upsticks to Switzerland at the very mention of tax and regulation and to grow some cahones big enough to really help Big Society.
Now is also the time for the UK government to stop propping up the banks with an ‘implicit subsidy’ as Haldane puts it, or free bailout insurance to look at it another way, worth around £100 billion in 2009 – or roughly what the government spends on the NHS it is rapidly dismantling (http://www.iiea.com/events/andrew-haldane-on-fixing-finance).
At DSC we believe that in order to be good corporate citizens, businesses have fiscal, environmental and social responsibilities towards the communities in which they operate. So, David Cameron, if it really is true that: “corporate responsibility is an absolutely vital part of my mission for this government” and that: “The big society is all about people recognizing that they have obligations beyond paying their taxes and obeying the law” then please let’s start by enforcing those basics, across the board, for big businesses. In order to win back our trust I’m afraid the ball is very much in the court of the private sector, and the public sector, to prove that corporate citizenship is not just a fig leaf.