Is capitalism in crisis? (Stephen Lloyd)
September 2009
Stephen Lloyd gives his perspective on the root of the banking crisis and lessons from the voluntary sector
In the last fifteen years the charitable and voluntary sector has been constantly urged to learn from capitalism. Admonitions to be more ‘business-like’ and to generate more of their own income through trading have been very common and, partly because the legal and regulatory regime has been comparatively benign, the sector has responded. However, the financial crash of the last two years should make us all more wary of accepting the view that ‘Business Knows Best’.
And it\'s worth quoting here a very prescient comment: ‘The financial revolution, and the computer revolution which has made it possible, have produced a world all too reminiscent of Britain two or three centuries ago when greed infected honest citizens with a speculative fever which produced strange collective madnesses like Tulipomania and the South Sea bubble. At that time the consequences of such financial insanity were limited largely to the speculators themselves. Today the consequences of a similar speculative fever have produced a global financial system so fragile and yet so inter-dependent that it is vulnerable to many sources of break down and its break down could plunge the western world into a recession quite as damaging as the Great Slump of the 30s, with political consequences even more dangerous.’ That was Denis Healey, Labour Chancellor of the Exchequer from 1974 to 1979. He wrote it, amazingly, in 1989.
His critique was spot on. What he did not foresee were the rampant conflicts of interest, the blatant self enrichment; the reckless piratical behaviour that has driven our economic system onto the rocks.
As we view the wreckage I believe we need to take a serious look at whether the boot should be on the other foot – can capitalism now learn from charities?
Before I begin on that issue, I would like to mention one key point about charities and trading. Over the last 15 years more and more charities have entered into contracts with the state to deliver a variety of services. From social care to nurseries; from housing to counselling. The NHS is currently under an injunction to consider hiving off parts of the functions of Primary Care Trusts to social enterprises. Most commentators think this trend will continue: that more and more charities and social enterprises will take over from the state.
I do not share that view. In a tight economic market the powerful private sector players both British and overseas will offer government the twin blandishments of low prices and strong balance sheets. The charity sector will find it very hard to compete. Of course once the completion has been knocked out prices may well rise but that will be of comfort only to the shareholders of the companies providing the services and not to the tax payer. What is of even greater concern if my fears are true, is that we will then find our key services are being run by for profit agencies who may display some of the same unattractive qualities that have just almost shipwrecked the good ship United Kingdom.
So my theme tonight is to explore some key principles which underpin the charity sector and see how they could help create a better capitalism. The principles are: Selflessness; Diversity; Innovation and Regulation.
Firstly, selflessness.
Selflessness is at the core of what is distinctive about the sector and the key to it inspiring high levels of trust.
What do we mean by selflessness? One of the underpinning themes of charity law is that trustees should avoid conflicts of interest and should not benefit from their trust. Basically we expect that trustees to do it for love, because of their passion for the cause; their commitment to making a difference.
This ‘volunteer principle’, is being eroded because we have new legislation which enables trustees to be paid for their services to a charity; not for their board service, but their service in other guises for example, as web designer, plumber or lawyer. This more limited proposal was accepted against the background of a lobby for charity trustees to be paid for their board service, the basic argument being that the environment in which charities operate is increasingly complex and that as a response they are increasingly difficult organisations to manage.
But is the right response to cut away at one of the basic principles of charity? I fear that we are in danger of witnessing the rise of a ‘trustocracy’ – mark that neologism, it may become popular - namely people who serve on the boards of charities in order to supplement their income by virtue of access to contracts for their professional services. In my view it is crucially important that we hold onto the idea of charity trusteeship as a form of public service without it being tainted by commercial self interest or self dealing. But more importantly it stands in stark contrast to the prevailing spirit of so much modern business with vast incentive packets; bonuses; share options, etc.
I’d like to focus on the credit rating agencies and the audit firms and the serious conflicts of interest inherent in their operations, which display the exact opposite of the charitable principle of selflessness.
First, the credit rating agencies. They have been subject to significant criticism in the wake of the enormous losses made on products which they assigned top ratings. For example, losses on $340.7m worth of collateralised debt obligations issued by Credit Suisse Group added up to about $125m regardless of the fact it was rated AAA by Standard & Poors, Moody’s Investors Services and the Fitch Group. According to an article in the F.T, there were apparently 60,000 AAA rated products circulating in 2007 but only 12 AAA rated institutions – you can bet your bottom dollar the products were not just issued by those 12 institutions.
The business of rating securities backed by pools of residential mortgages was extremely lucrative for the credit rating agencies and they made large profits on the back of it, Moody’s in particular. It went public, saw its stock increase six fold and its earnings grow by 900 per cent. But, last year Moody’s had to downgrade more than 5,000 mortgage securities, an acknowledgement that it had been overly generous in its ratings.
The obvious conflict here is that the rating agencies are paid by the banks and other institutions whose products they are rating. If a bank found that a rating agency persistently gave lower ratings to its products than it hoped for/expected it seems inevitable that it would take its business elsewhere. It was therefore in the interests of the rating agencies to please the banks to maintain their business.
The way forward must be that credit rating agencies have to be fundamentally reorganised. They should stop being allowed to pursue profit. Their services should be seen as vital to the operation of the market and, as such, they need to be trusted custodians of that role.
Taking our inspiration from the charitable sector, we would suggest that the way forward is for the credit rating agencies to be converted into some form of non-profit distributing organisation. Their members should be organisations with a vested interest in ensuring that the agencies give true, fair and honest ratings. The obvious candidates, therefore, include HM Government, The Association of British Insurers, The British Bankers Association, The Institute of Chartered Accountants, and big charitable foundations, etc. These members would elect a board of directors capable of ensuring the highest standards of probity amongst the employed staff.
The credit rating agencies’ cost would be met by a levy charged to the banks, the insurance companies and all quoted Plcs. That money will obviously have to be sufficient to finance the ongoing operation of the agencies. But in financing them through a levy in this way, one would be avoiding the inherent conflicts of interest that currently bedevil their operation. They would no longer be under any pressure from a company or bank or other financial institution to rate a CCC bond as a BBB.
In this way, one hopes, investors would begin once again to have confidence that when a financial instrument is rated AAA, it really is AAA. And in case you think this is pie in the sky – a similar proposal was made in testimony before the US Congress by Jim Simms the billionaire CEO of Renaissance Technologies LLC who criticised the conflicts of interest embedded in the current structures of Credit Rating Agencies. So too has George Soros. And recently The UK Treasury Select Committee expressed its ‘deep concern’ about the conflicts of interest faced by credit rating agencies, but was not willing to embrace a radical solution. I suggest a not-for-profit agency would exactly address that conflict.
This is no minor matter. Credit Rating Agencies have enormous power – not only do they rate companies and products, they also rate countries. Standard & Poors have already warned that the UK’s ballooning deficit may result in it downgrading the UK’s precious triple AAA rating. If it does so all of us – as taxpayers – will have to fund the increased interest charges on the UK debt that will follow from this. Standard & Poors is a privately owned company, standing in judgment on nation states. But at the same time it was Standard & Poors who contributed to the mess we are in by wrongly rating all those structured financial products. It would be funny if it was not so serious.
Second, the audit firms. Auditing is big business. Audit work gets the big accountancy firms through the door of a company. The suspicion is that audit work is regarded as a loss leader, enabling the firm to access lucrative contracts for a range of other services. A report by NEFFive Brothers: the Rise and Nemesis of the Big Bean Counters describes the range of consultancy services they offer:
….for a suitable fee they will appoint a companies’ staff, rearrange its structure to get rid of staff, tell it how to take over other companies and how to dispose of businesses it no longer wants, devise a business strategy, give legal advice….protect its intellectual property. The typical firm will minimise a companies’ tax bill, plug it into the internet age, trouble shoot against changes in the political climate, and through ‘reputation assurance’ it will play the role of corporate spin doctor.
The extent of these services and the large fees they generate compromise the objectivity and integrity of the audit process. Enron had already provided an instructive example – that killed off Arthur Anderson.
The NEF report concludes that:
The Five Brothers have become too big for their own good and seem incapable of acting genuinely in the public interest…The outstanding question is how to give real ownership of such a vital public interest function back to its diverse stakeholders, rather than just to company stakeholders. Perhaps it is time to mutualise the profession, or for it to take on a new not-for-profit form.
And along the way it is worth remembering that KPMG US had to pay a fine for $465 m for ‘designing, marketing and implementing tax shelters’. A fine that size would sink most businesses.
House of Commons Treasury Select Committee
As the Treasury Select Committee report on The Banking Crisis: reforming corporate governance and pay in the City commented at paragraph 237:
‘We remain concerned about the issue of auditor independence. Although independence is just one of several determinants of audit quality, we believe that, as economic agents, audit firms will face strong incentives to temper critical opinions of accounts prepared by executive boards, if there is a perceived risk that non-audit work could be jeopardised. Representatives of the investor community told us of their scepticism that audit independence could be maintained under such circumstances. This problem is exacerbated by the concentration of audit work in so few major firms. We strongly believe that investor confidence, and trust in audit would be enhanced by a prohibition on audit firms conducting non-audit work for the same company, and recommend that the Financial Reporting Council consult on this proposal at the earliest opportunity.’
I would go much further than that. I would support the creation of a new not for profit organisation, a Public Companies Audit Office (PCAO) funded by a levy on publicly quoted companies in the UK. This new organisation would license a number of firms to carry out audits and allocate them to audit particular companies.
The licence would allow them only to carry out audit work and nothing else. Audit fees would not be paid directly by public companies, instead public companies would pay a levy to cover their audit fees which would be paid to PCAO each year. PCAO would allocate an audit firm to a particular Plc. The Plc would have no say in which audit firms should be appointed and at reasonably regular intervals – say, every 10 years – the audit firm would be changed by PCAO. In this way audits would be undertaken by genuinely independent firms with no relationship whatsoever in terms of payment of fees or the receipt of work from the company which it audited. It is hoped that this would engender a much tougher and tighter audit regime.
These reforms may also encourage the audit firms to operate in different ways. Currently, much of the audit work in terms of checking the books, etc. is undertaken by very junior – often trainee – accountants. Therefore, there isa concern that some more arcane and complex business practices go unchallenged and it is possible that the audit partners are not precisely aware what is going on in a particular business because they have not spent a time going through the books themselves. The current structure for carrying out audits in this way is based upon the financial demands of the accounting practices. Under the new proposed arrangements PCAO could stipulate the level of accounting charge levy which would enable the audit firms to carry out audits using more expensive and more highly qualified staff. All of this, of course, could be dealt with through the licensing arrangement for audit firms operated by PCAO.
As if we hadn’t had enough of all this self dealing, it will soon become possible for accountancy firms to merge with legal firms, thus creating huge professional supermarkets and raising the stakes on conflicts of interest even higher, as even more fees ride on the introductions that audits make. New Labour has legislated for this in the Legal Services Act 2007. We all have a great deal to lose from this because it signals the erosion of the role of the professional in our society to the potential serious detriment of our public life. In their lively book, The Gods that Failed, Larry Elliott and Dan Atkinson argue this point very well – they refer to:
the value of a professional middle class, independent of both the state and of corporate power…Professions must be subject to public scrutiny – they should be subject to sensible independent regulation. But they cannot be adequately replaced by corporate forms of employment.
The next step – and it is already happening – will be for professional firms to be floated on the Stock Market and then be obliged to maximise shareholder value. This will create a stark conflict between a professional’s duty to his client and his duty to maximise profits for their shareholders. There are no prizes for guessing who will win.
Secondly, Diversity
A mono culture is inherently dangerous because of its potential vulnerability to diseases. We have been living through an age of legal mono culture in the way that we organise private sector business. The company limited by shares has been hugely dominant in the last 50 years. Compare this to the diversity of the charitable and voluntary sector with organisations established by Royal Charter, Industrial and Provident Societies; trusts; Community Interest Companies and companies limited by guarantee. Some might describe this as chaotic but I think it’s a healthy antidote to the monotony of the company limited by shares.
The company limited by shares has lead to a remorseless concentration on shareholder value that has eclipsed all other considerations. It has made it extremely difficult for businesses to develop any social or environmental sense of responsibility, hence the difficulty in getting companies to align with triple bottom line accounting. Even Jack Welch, former CEO of General Electric – affectionately known as ‘Neutron Jack’ and apostle of the doctrine of the maximisation of shareholder value has now recanted. He now believes ‘shareholder value is the dumbest idea in the world’.
If we are to address the enormous problems that face the world; of global poverty; environmental degradation; climate change and international social injustice we have to find a way of combining the innovation of capitalism with the charity sector’s commitment to social values. Greater use of legal structures such as Community Interest Companies and innovative partnerships would help us to build a stronger ‘blended value’ economy of organisations focused on generating a profit or surplus but also focused on achieving a social purpose. The need for such organisations is intense given the social challenges we face to meet the need so we require sustainable solutions based on a blended value model.
I would suggest we also need to refocus on mutual organisations. For a long while they were out of favour. The destruction of the building societies by the Thatcher government in the 1980s was one factor in the grotesque expansion of credit which led to the bursting of two housing bubbles. We still have some examples of large successful mutual organisations on our high streets, the John Lewis partnership, the Co-Op and the remaining building societies. A positive legacy of this recession may be renewed interest and enthusiasm in mutuals, for example, as a means of encouraging saving since many people have now lost confidence in the big banks. Amazingly 100 new banks are already being formed in the US: in the UK the only one I am aware of is in Essex where a local bank is being created.
The once derided Co-op bank provides an instructive example. It now has a much stronger balance sheet than its flashier; commercial rivals. This is largely because the Co-op stayed true to the traditional banking model, and didn’t engage in fancy new financial products. However, its success is also based on its commitment to socially and environmentally responsible investment.
Ultimately, a change to European company law requiring directors to have to take account of the interests of their stakeholders as well as their shareholders is what is needed. Great work was done on this in the 1990s by the Royal Society of the Arts and its Tomorrow’s Company project. New Labour in opposition supported these ideas. But as soon as it got into government it promptly dropped them.
At the very least one possible reform would be to require all quoted companies to have one non-executive director with extensive experience of the social sector. Given the number of women who are leaders in the social sector this might bring more women into Britain’s board rooms. It is deeply depressing to look at the directors of UKFI – the company owned by the Treasury to control our investments in the failed banks and building societies. They are all – without fail – either bankers or civil servants. No-one represents an alternative view to the prevailing hope that we can soon get back to business as usual – big bonuses, big deals and no consideration of the social or environmental impact of current banking practices. It would be a lonely job being the social director but such a reform might just start some changes. This might help reorientate companies away from the short termism of maximising shareholder value to recognising the need to take account of environmental and social issues as well. Clearly a well run pilot scheme could begin to get this proposal underway. I gather there is one at the London Business School and I am glad to hear that: Business in The Community could at least recommend this to its members.
Thirdly, Innovation
Another notable feature of the charitable and voluntary sector is its constant capacity to challenge and to innovate. It has always innovated in the provision of new products and services and through backing research and development. It has also been an advocate for social reform, for example, the Anti Slavery Movement, mobilising large numbers of people to support its cause or the National Trust helping preserve the British land and townscape.
Late in the last century the sector also become more innovative in the way it intervened in markets to make them fairer through for example, mechanisms such as micro finance and fair trade. Both, could be characterised as attempts to harness capitalism for social ends and both have been notable success stories. I’ve already discussed Fairtrade, so here I’ll focus on micro-finance.
We’ve all heard of the Grameen Bank established by Muhammad Yunus in 1983 to make very small loans to poor villagers in Bangladesh unable to raise credit elsewhere. It has so far loaned about £3 billion to more than six million of the very poorest in Bangladesh and across the Asian sub-continent. Default rates are very low and the initiative has always been completely self financing, loan repayments cover costs. It has a good record of supporting people to establish micro enterprises, particularly women who use the income to support their families.
According to estimates for 2007, there are now roughly 10,000 micro finance institutions with a collective asset base of more than $35b, serving 66 million clients across the globe. A recent publication by New Economics Foundation called Mission Possible discusses the growth of investment in micro finance. One notable feature of this growth has been the leverage provided by charitable funds used for example, to demonstrate the viability of schemes and/or to reduce the risk for private investors. The report says:
…the growth of microfinance is an interesting case study in how a sector incorporating and developed on the basisof grants and non-commercial loans can grow to a stage where it can support commercial investment and thereforeleverage significant finance…. Since 2004, over $500 million has been raised commercially…..and thisis expected to grow significantly.
The key irony here is that traditional bog standard lending to poor women in developing countries prove to be safer than lending to flashy sophisticated expensive banks in the US, the UK and other advanced economies. It throws the advice of so-called experts on its head. Poor women, low risk; smart company, high risk.
The Fairtrade Foundation was established in 1992 by a number of overseas development agencies: CAFOD, Christian Aid, Oxfam, Traidcraft and the World Development Movement. As you know it seeks to transform trading structures in favour of the poor and disadvantaged by facilitating trading partnerships based on equity and transparency. It guarantees producers a minimum price and a premium for investment back into their communities.
Cadbury’s recently announced that all the cocoa in Dairy Milk and in its drinking chocolate in the UK and Ireland will in future be sourced from Fairtrade producers. It’s making this move because consumers like Fairtrade products but also to secure its supply chain. It buys all of its cocoa for its UK products from Ghana. It helped set up the cocoa industry in Ghana almost 100 years ago. But it is an industry in decline; generally, cocoa farms are unproductive and the next generation does not want to take them on. The Fairtrade farms are however, different. The higher prices they command are likely to keep young people on the farms. An article in the Guardian reporting this development refers to a pre credit crunch commercial sector in which:
every relationship was seen as temporary and every partner replaceable the moment someone cheaper came along. Cadburys has decided its interest lies in long term relationships with suppliers who earn a decent living….it will not be the last company to reach that conclusion.
There is a good example of the commercial sector learning from the voluntary sector.
The Noaber Foundation, based in the Netherlands provides a good illustration. It has two main goals; to stimulate social entrepreneurship in developing countries and underprivileged communities by means of ICT; and to encourage cooperation in the provision of health and social care services. It has therefore developed a three-stage investment model:
- Grants are provided to enable the development of innovative ideas.
- ‘Social venture capital’ enables projects that might become sustainable to be implemented.
- Continued financing is provided for projects that have the potential to be picked up by venture capitalists.
The innovative use of its money shows how foundations can help create new socially focused businesses by using their funds in a variety of ways.
A group of foundations in the US have launched a campaign to encourage foundations to invest 2 per cent of their capital in what NEF calls ‘mission connected investment’. They estimate that this would generate an extra $12bn of funding to advance charitable purposes. Paradoxically a recession may be a good time to encourage foundations to engage in mission connected investment. Such investments tend to show their worth in recessions because they are counter cyclical.
An anecdote from the US depression comes to mind here. The Roosevelt administration wished to build infrastructure that would help improve the quality of life for citizens including the rural poor. One plan was to ensure that all rural areas were linked into the electricity grid. The private sector didn’t want to get involved; it said that the project required too great an investment and they wouldn’t recoup their money quickly enough. Not for profit organisations were established to undertake the task and comprehensive coverage was achieved. Shouldn’t we be thinking, as Geoff Mulgan urges in a recent paper, about the social infrastructure that we need to support us as we emerge from the recession and to look creatively at how the necessary investment might be raised. And if the private sector will not do this can the charity sector lead the way?
Finally, Regulation
The recession is in part the result of a failure in regulation.
In 1933, in the wake of the Great Crash, two US congressmen, Messrs. Glass and Steagall introduced legislation which sought to limit the conflicts of interest inherent in banks underwriting stocks or bonds. The new law forced banks to choose between being a retail bank, taking in deposits from the public or an investment bank which underwrote stocks or bonds and engaged in speculative activities. It might be described as a safety valve for capitalism, a mechanism designed to stop abuse and ward off the possibility of systemic collapse.
After twelve attempts in 25 years to change the legislation a lobbying effort which cost an estimated $300 million, the Glass –Steagall Act was finally repealed in 1999 by the Clinton government. This repeal was however, largely symbolic. Over the previous few years under the pressure of the new Right the provisions of Glass – Stegall had been gradually eroded by the Federal Reserve Board. In 1978 it voted for a major easing of regulations under the Act allowing the banks to handle underwriting businesses including mortgage backed securities.
An article in the New York Times, around the same period, gave a prescient warning, headlined ‘Don’t let our banks become casinos’, it argued:
The solution to the problem of internationalisation is not the abolition of the Glass-Stegal Act but an approach that would…continue to guarantee and separate stable pools of both high and low risk markets and open foreign markets to American banks.
The author Charles Schumer, then a Democrat member of the House Banking and Urban Affairs committee cautioned:
Let’s not destroy a stable structure that, since the Depression, has provided capital for entrepreneurs, confidence for investors and healthy profits for America’s financial service companies.
But no heed was taken and the consequences are apparent to all of us. Depressingly Gordon Brown and Alastair Darling have refused to legislate to split retail and investment banking in UK. They should. Only retail banks should have a state guarantee. Investment banks should not. By allowing the merger of these two functions the government allows risk to be nationalised and profits to be privatised.
It reminds me of Martin Luther King’s jibe about US policy ‘socialism for the rich and rugged free market capitalism for the poor’.
Banks also need to be required to hold far higher amounts of capital and to increase that when the economy is expanding; equally the ratio can be reduced in a downturn. But the simplest reform the government could make would be to prohibit any UK licensed bank to handle any money from tax havens. The would be a huge blow to the international accountancy firms and their big clients. It would stop big companies washing their profits through tax havens and avoiding paying corporation tax: it would force many onshore thereby strengthening UK banks and it would stop UK residents sheltering money offshore if they wanted to spend it here.
The failure to regulate the banks properly is but one example of inadequate regulation. The recent UK Treasury Select Committee report is absolutely clear that the close supervision of banks and their audits on an annual basis by the Bank of England used to involve regular meetings including one between the Bank of England and the auditor alone. This was replaced by occasional meetings between banks, auditors and the FSA on an ad hoc basis.
Capitalism needs regulation although it constantly fights against it. It needs regulation to save it from itself and to engender confidence. Unlike private sector organisations, charities and voluntary organisations understand the importance of regulation. They recognise the role it plays in engendering public trust and confidence and, they know that public trust is key to their survival; it underpins charitable giving and volunteering. Hence between 1996 and 2006 charities carried on a campaign to persuade the government to overhaul the laws relating to charities and – to a degree – to increase regulation so as to engender greater public confidence. In particular, the pressure to ensure charities delivered public benefit initially came from the sector itself – not from government. Can you imagine many sectors – especially the financial sector – asking the government to legislate to make them more accountable to the public? It sounds like a fantasy. But in the charity world it is not – because charities understood the key truth that public trust is maintained by appropriate accountability enforced by law.
Regulation does not need to come from laws. Regulation can also spring up through concerned citizens exercising oversight. The voluntary sector can teach capitalism something else out of this crisis. One of the huge deficits at the heart of the financial and, indeed, commercial system is that although companies are in theory based upon democratic principles – in the sense that shareholders can elect and dismiss directors – these powers are never used. Of course, it is a somewhat distorted version of democracy where power is distributed according to money, rather than on the basis of one man, one vote, but it is nonetheless still a form of democracy and a mechanism for calling directors to account. The tragedy is that nobody exercises these powers. The big financial institutions, in particular the pension funds who control the money of masses of individual citizens have been appallingly negligent in exercising any sort of systemic control over the businesses in which they invest. There is a significant group of investors who, in my view, could and should act. These are the charitable foundations. They control, at a rough guess, investments valued at £40 billion. A very simple but potentially extraordinarily powerful step would be for each of them to pay a modest contribution to finance the establishment of what I would like to call Investor Watch. Investor Watch could be a Community Interest Company, funded by charitable foundations. It would have an expert staff, properly paid, who would research and scrutinise the operations of different sectors. The foundations who funded Investor Watch would also mandate it by giving it proxies for all the shares they own in all the companies which Investor Watch scrutinised. This would mean that Investor Watch will be able to attend the Annual General Meetings of all the major companies in this country with a significant number of votes in its pocket. Investor Watch proxy holders could then speak at the AGMs. A rolling programme such as this of concerned investor involvement at each AGM of each major company would – I have no doubt – begin to change the way in which British companies – and indeed other companies – operate. Might it be too much to hope that some of the pension funds might also join Investor Watch so as to support shareholder involvement to ensure that investee companies operate in a fair and appropriate manner? If only the major foundations would do this, this could be a major form of regulation upon the system which requires no legislation. It will be a classic example of the voluntary sector responding to a problem in a grass roots, bottom up way such as been the source of its strength down the ages. Not waiting for government but initiating reform and then shaming government to follow.
The market could be transformed if Investor Watch worked only with a new not for profit independent credit rating agency. That would force companies to abandon the for profit rating agencies and accept the tougher standards of the independent CRA in return for access to Investor Watch managed funds.
Conclusion
We face huge challenges. The financial crisis is awesome; global warming is potentially catastrophic, the increase in global poverty disasterous. If mankind is to respond we cannot wait for governments or business. History shows us that it is the up swelling of popular sentiment harnessed by committed individuals that creates great change. One example. It is thought that in the mid 18th Century when the Anti-Slavery Movement got underway, a third, yes a third, of the world’s population were enslaved, either directly or through bonded labour.
The founders of the Anti-Slavery Movement, Granville Clarke, Thomas Clarkson and Jesire Wedgewood were unknown. They took on the equivalent of big oil, big business, big accountancy, and big pharma. But over a 40 year period they succeeded. I wanted to mention the Anit-Salvery Movement because there is another parallel with climate change. Slavery was a form of energy, human power rather than horse power. The climate change debate is about changing a source of energy. Moving away from fossil fuels to renewable fuels and the vested interests of the big oil companies today, just like the slave traders and slave owners of the past, will resist mightily.
We need to shift from fossil fuels to renewable energy, fast – and the pressure to make that happen will I am sure come from innovative dynamic people in the charity and voluntary sector who understand that we need to build a different economy. Currently we have an economy that tells us it is cheaper to trash the planet rather than renew, restore and sustain it. To do that we have to change our approach to money.
Charities have always seen money as a means to an end. It is not an end in itself. It needs to be put back where it belongs as a means of achieving economic exchange and develpment, as society’s servant and not its master. Charities have always known that but wider society has forgotten it. How will change be achieved? I suggest that we urgently need to take a cue from charities and introduce:
- reforms to address commercial conflicts of interest – especially with credit agencies and audit firms;
- reforms to re-energise mutuals, co-ops and CICs, moving away from the dominance of the company limited by shares;
- a shift from seeking to maximise shareholder value to deliver blended rates of return;
- appropriate regulation of the financial system.
I would like to conclude with a quotation from President Roosevelt’s Inaugural Address in 1933:
‘The money changers have fled from their high seats in the temple of our civilisation. We may now restore that temple to the ancient truth. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit. ‘
Author: Stephen Lloyd
Stephen Lloyd is senior partner of Bates Wells & Braithwaite London LLP and in his spare time is chair of the Centre for Innovation in Voluntary Action; vice-chair of Global Cool Foundation and serves on three other charities.
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