'North Sea Capitalism' - Reforming Corporate Governance

Posted on 27-12-17 by William Dry Number of votes: 1 | Number of comments: 2

The case for reform

The financial crisis of 2007 and the one which preceded it in Asia in the 1990s were symptoms of a flawed economic system in which managers ran banks and corporations into the ground in their reckless pursuit of high profits for the shareholders. This system is unsustainable and out of control and desperately
needs real structural reform otherwise we are doomed to have further crises inflicted on us again and again with the most vulnerable in our society paying the heaviest price.

Furthermore, the current 'Atlantic system', with its emphasis on maximising short-term profit is detrimental to long-term investment, financial stability and job security. There must be an alternative to this.

 

A call for economic democracy

Democracy, plurality and accountability are essential for good governance and this applies to corporations as much as it does to countries or states. I propose a new model of corporate governance built upon the principles of democracy, plurality, accountability and autonomy.

I look to Germany for inspiration. Its system of corporate governance, based on codetermination, encourages its firms' management boards to take the long-term view, prioritising steady growth, stability, investment and brand reputation over immediete short-term gains. 

To illustrate the stark difference between this system and the Anglo-American model we only need compare the German auto industry to that of Britain or America. Detroit was once the world's car manufacturing superpower and now it is a virtual ghost city, characterised by empty factories, abandoned houses and poverty. It is just one of many once-booming American manufacturing cities now left decimated by corporate greed.

 

The 'Anglo-German' or 'North Sea' corporation

As I am essentially proposing a pivot away from the current 'Atlantic' model towards something more like that which is typical in Germany, I call this the 'North Sea' model in order to make the distinction and emphasise the incorporation of German practices into our current system.

I propose that we follow the German example and adopt codetermination legislation which would apply to all Public Limited Companies (PLCs) and large private firms.


The British Codetermination Act would require the establishment of a powerful supervisory board to balance the shareholder-appointed board of directors. The
supervisory board would consist of elected representatives of workers and appointed representatives of stakeholders such as banks. On this board would also sit representatives of all shareholders with a large (>10%) stake in the company, thus ensuring that a broader range of shareholders' interests are represented. The supervisory board would be responsible for holding management to account, approving all major decisions and would appoint its own representatives to the board of directors.

 

The 'Anglo-German' or 'North Sea' bank

The British Codetermination Act would also apply to banks, though the composition of the supervisory board would be slightly different as employees would have reduced representation. The dominant voice on the bank supervisory board would be the representatives of the banks' primary stakeholders – their depositors. The interests of the banks' depositors, like those of a firm's employees, are long-term. Therefore, ensuring that both banks and firms are subject to the wishes of their depositors and employees respectively will in turn ensure that they take the long-term view.

Referring to: Economy, Business and Trade

The Economy, Business and Trade Policy Commission develops Labour's economic and business policy, including industrial strategy and international trade.

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