Stakeholder capitalism finally makes it into law. And the NGOs' flawed accountability charter shows they don't practice what they preachby P L / July 22, 2006 / Leave a comment
A high-stake reform
A decade ago, a fresh-faced Tony Blair briefly touted “stakeholder capitalism” as New Labour’s big economic idea. But he soon recoiled: the notion, made fashionable by Will Hutton’s The State We’re In, that companies should be accountable not just to the short-term demands of their shareholders but also to the long-term interests of their wider stakeholders, such as their employees, was dismissed as dangerously radical. Yet in the dying days of the Blair era, the government is quietly pushing through parliament a bill to reform company law that could have dramatic consequences for British businesses. The bill will for the first time put company directors’ duties into statute. They will be required to ensure that the business is run in the financial interests of its shareholders, but also to “have regard to” its impact on employees, customers, suppliers, communities and the environment. The bill will also make it easier for shareholders to sue directors for failing in their statutory duties.
Predictably, the coalition of unions and NGOs campaigning for greater corporate social responsibility complain that the reforms do not go far enough—they would rather directors had a “duty of care” to communities and the environment. But even in its current form, the bill is a big victory for them. It would, for instance, allow NGOs to sue directors for failing to give due regard to their company’s environmental impact. Friends of the Earth (FoE) could buy a few Tesco shares and then sue the directors of the supermarket chain for, say, failing to do enough to encourage recycling, squeezing its suppliers too hard or sourcing fruit from developing countries where environmental rules do not live up to FoE’s expectations. The mere threat of legal action would have directors scrambling to cover themselves.
That is bad for business—and a shoddy way of advancing green goals. Soundly based, transparent and predictable environmental regulation is surely preferable to expecting company directors to second-guess what courts might deem appropriate.
A flawed charter
NGOs have long demanded that governments, businesses and international organisations be transparent and accountable for their actions—and rightly so—but what about NGOs themselves? The self-appointed guardians of global rectitude ask us to rely on their word that they are beyond reproach. But in a belated response to closer scrutiny, this is finally starting to change: 11 leading international NGOs have just signed up to a new…