Fire and water: the curse of corporate irresponsibility

What do the Grenfell Tower horror, the shameful Post Office scandal and the lamentable performance of our water companies have in common?

Answer: they are all, to varying degrees and in different ways, failures at that point where public services, the private sector and poorly-regulated corporations meet. It’s the Achilles heel of complex, mixed economies.

The victims and survivors of the 2017 high-rise Grenfell fire continue to be shabbily treated. Many await compensation while private contractors responsible for the tragedy squabble over who exactly was to blame for the inferno that killed 72 people.

Nobody at the Post Office has been censured over that shocking miscarriage of justice in which over 700 innocent sub-postmasters were falsely accused of fraud. The Post Office keeps dragging its feet as the public inquiry tries to get at the truth. Just this week the judge leading the inquiry slammed it for “grossly unsatisfactory” disclosures.

Privatised water companies plead “too much rain” for polluting our waterways and wasting 25% of our water, while shovelling billions in dividends to their offshore shareholders. Regulating these monopolies has plainly failed to fix their business model.

Widely different as they are these three examples raise, once again, the question of how companies that serve the public good behave and how they are regulated. What are the state’s responsibilities in the face of companies that will not assume theirs?

Around half of public spending at a national and local level is outsourced to the private sector, so the question is not theoretical or frivolous. Trillions are at stake.

From the collapse of Carillion, the outsourcing giant, to government-sanctioned sharp practices over the supply of PPE equipment during the pandemic, a huge question mark hangs over companies that take taxpayers’ money.

Is their only responsibility to their shareholders? Is it just to maximise profits, as that apostle of the free market Milton Friedman argued? Or do they, should they, have a broader responsibility, a built-in public service ethos into their remit?

It’s a question which the Labour Party should be thinking about, as it drives forward its prawn cocktail offensive to persuade business that it can be trusted with the economy. This is not just a moral question. Corporate failures, corporate negligence or worse have a direct impact on the electorate. They create victims. So they have a political fallout.

Labour’s Sir Keir Starmer is positioning himself as the heir to Sir Tony Blair’s business-friendly approach. This is understandable after the Jeremy Corbyn insurgency. The path to victory (and a second term without which lasting change is impossible) lies in persuading the electorate that he can stop Britain spinning its wheels by creating jobs. But if this isn’t coupled with a commitment to defend what the then Tory Cabinet Office Minister Frances Maude in 2015 called “a public service ethos in the provision of public service”, then one might well ask: what’s the point of Labour?

The UK’s approach to dealing with issues of corporate governance invariably follows the same pattern: corporate scandals (Maxwell, Polly Peck, BCCI); set up a committee that makes recommendations; these are either implemented (usually in a watered-down form) or kicked into the long grass. There is no more vested interest than money.

Margaret Thatcher’s Big Bang in 1986, in one fell swoop, de-regulated the City of London revolutionising its fortunes. This in turn created a roller-coaster of boom and bust that led in a straight line to the 2008 financial crisis.

Since then there have been several high-profile investigations into corporate failures. Of these the Cadbury Report, published in 1992 after a series of high-profile corporate failures, stands out. Its recommendations have been used widely, both in Britain and abroad, to establish voluntary codes of practice in an effort to reduce failure and corporate malfeasance.

But its recommendations were just that — voluntary. They relied on the corporate equivalent of the “good chaps” theory of government – the idea that companies, like Prime Ministers, can be trusted to police themselves. At the time, the CBI fought for the removal of the requirement that compliance with the new code should be mandatory if companies wanted to be listed on the Stock Exchange. Sir Adrian Cadbury, the commission’s chair, won. But the nature of the beast is always to defend its territory.

So what should be done to inject moral fibre into the corporate sector?

One of the big themes of corporate Britain is Corporate Social Responsibility (CSR). This is essentially a marketing approach. It argues for visible contribution to social change by companies as a means of winning over customers and thus bumping up their bottom line.

The idea behind CSR is that “good” companies don’t just single-mindedly pursue profit. They also behave in a way that benefits, according to the Harvard Business Review, “people, the planet and society at large”. Companies spend a fortune polishing their goody-two-shoes image. Millennials and Generation Z buy into the idea big time, the emphasis being on “buy”.

But that’s not the same as behaving ethically in their dealings with the public sector. Companies, as we’ve witnessed with Grenfell, the Post Office and water, won’t behave ethically if they’re not made to.

Will Hutton, the left-of-centre economist, argued recently in the Observer that what we need is a reconfigured, hybrid capitalism. Taking back water into public ownership wouldn’t necessarily solve the problem of how they’re run. But some kind of new, public benefit corporate structure might.

Water companies, like our railways, are archetypal private-public entities. Without some kind of fixed tether to the state which it can yank when things go awry, more of the same will just perpetuate a broken system: more drift, more waste, more negligence and more victims. A particularly dreadful example is the record of our outsourced mental health services.

The path ahead is not clear. It is a hugely complex tangle of interests and obligations. But we have a choice. Do we carry on regardless and watch, time and again, companies getting away with murder under a system heavily weighted in their favour?

Or do we start a conversation about how we can get companies with one foot in the public sector to behave differently?

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