The coronavirus crisis has already transformed the UK’s corporate environment beyond recognition. Millions of businesses are currently borrowing directly from the government effectively for free, while the state subsidises 80% of their wage bills and provides them with tax holidays. A few businesses – the cobblers and locksmiths Timpson, for example – have reacted to this state largesse with generosity of their own, keeping their workers on with full pay.
Others have behaved quite differently. Tim Martin of Wetherspoons announced to his staff over a video call that the chain would not be paying workers until government subsidies arrived, and that they might want to think of applying for a job at a supermarket in the meantime – though, thanks to organising amongst staff, this decision has now been reversed. There have been widespread reports of businesses laying off workers on zero-hour contracts via text message. For those who remain in work, the situation is often not much better. At JD Sports, trade unions have expressed deep concerns at the apparent lack of attention to workers’ safety in its warehouses.
It should come as no surprise that some of the UK’s largest businesses behave in this way. Their owners and senior managers would respond to those who cast them as villains by claiming they are simply discharging their responsibilities as businesses: to maximise value for shareholders.
The ideology of shareholder value, like many of capitalism’s most egregious affronts to morality, has its origins in the 1980s. Milton Friedman laid the foundations for the shareholder value revolution with an essay for the New York Times, in which he stated that corporations have absolutely no ‘social responsibilities’ other than to maximise value to shareholders. In maximising their profits, businesses would ensure the most efficient use of society’s scarce resources: higher profits meant more capital available for investment, which would create jobs and boost growth.
The ‘shareholder value revolution’ was a time of upheaval for both the norms of corporate governance, and the financial markets that mediate corporate ownership. With the deregulation of stock markets and financial system, shrewd investors were able to take out debt to buy up ‘underperforming assets’ like shares (or even entire businesses) before squeezing out huge profits, often by stripping assets out of the business. This was the heyday of the corporate raider and the asset stripper; the debt-leverage buyout and the hostile takeover.
Ultimately, the financialised logic that this system engendered has promoted extractivism rather than efficiency – at times, it has encouraged outright fraud, and has certainly created a tendency towards tax avoidance, higher pay differentials and union busting. What’s more, the huge profits generated by the world’s largest corporations have not generally been used to fund productivity- and jobs-boosting investment. During the pre-crisis boom, it proved much easier to maximise value for shareholders by betting on stock markets or channelling money into property than by risky ventures like building factories or conducting new research.
Today, after a decade of low interest rates and productivity stagnation, many of the UK’s corporations still have yet to recover from the crash that financial boom caused. Even before the coronavirus crisis hit, many economists were warning of the threat posed by the UK’s huge corporate debt burden, which had already contributed to a series of insolvencies over the last few years from Carillion to Jamie Oliver’s restaurant chain and Flybe.
Not surprisingly, struggling indebted corporations have lapped up the cheap debt and wage subsidies provided by the government with glee. The problems stored up for the future – most notably, the accretion of new debt upon an already-unsustainable pile of old debt – are of little concern to the UK’s short-termist corporate executives, for whom the main priority is to continue to generate profits for shareholders in order to justify their huge salaries.
We cannot rely on this crisis to undermine the ideology of shareholder value, which has become so entrenched within the UK’s – and indeed the world’s – largest corporations over the last several decades. If we want corporations to behave well – to treat their staff and suppliers well, to operate sustainably and to invest productively – then we must organise to demand more from both businesses and the state.
The treatment of Wetherspoons workers provides a good example. Staff members – a number of whom already had some experience of trade union activity as part of the wave of strikes that took place in some major fast food and hospitality chains in 2018 – were quick to condemn Martin’s statement. Absent the ability to strike, they took to social media, where widespread outrage prompted Martin’s U-turn. In the midst of this pandemic, trade unions are more important than ever.
But we must also organise to demand more from the state. At present, the government is simply dishing out free money to some of the country’s largest businesses with no strings attached – much as it did to the largest banks in the wake of the financial crisis. The government’s refusal to stipulate that the banks must lend to the rest of the economy in the wake of the crisis undoubtedly exacerbated the credit crunch.
Government action is unlikely to stop at subsidies and loans – we will see a wave of corporate bailouts as this crisis progresses. We must demand that conditions be attached. Any companies in receipt of government support should be expected to retain as many of their workers as possible, cutting dividends payouts and senior salaries before undertaking layoffs. Longer term, they should be tasked with reducing pay differentials, promoting environmental sustainability and undertaking productive, rather than speculative, investment.
However this crisis plays out it is likely to transform both the UK’s corporate environment, and the governance of its major corporations. Either we will see the deepening of the logic of shareholder value, rendered much more powerful by the substantial support provided to large corporations by the state; or, we could lay the foundations for a new model of corporate governance – one that places the interests of stakeholders alongside, or even before, those of creditors and shareholders.