Corporate Social Responsibility: what’s it all about? Corporate Watch spoke to an industry insider who has worked with some of the world’s biggest multinationals to find out.

Why do corporations produce corporate social responsibility (CSR) reports and publicity?

They use it to distract people from what is going on ‘over there’ – in the parts of their business they don’t want people looking at. Those of us working in the CSR teams give them the language to hide what they are doing.

It’s revealing that it’s mostly just the CSR teams sit closely with a corporation’s communications and marketing. You can tell if a company is serious about being responsible if they have people from the core of the business connected to the CSR work. But most don’t.

Actually many corporates don’t actually call it CSR anymore – just CR. They have dropped the ‘social’. This came in a few years ago. Another new name is ‘Corporate Sustainability’.

Who is it directed at?

I think a big target audience for CR is internal – the company’s own staff. It helps companies’ recruitment. Especially when it comes to young people – millennials usually want to work for companies that they see as ‘purposeful’. It can attract young people and keep them there for longer, knowing that what they do is part of something bigger.

CR teams, in particular, are usually made of people who might otherwise have worked for a big charity. Of course, staff are still aware of the less responsible activities their company is involved in but they are quite happy to swallow the pill of CR to justify high stress positions and long working hours.

How has it changed over the past decade?

Corporate philanthropy is now totally out. That is the past. Now CR is about making changes in your business to make it responsible. But of course, many companies don’t make any real change to their core business.

I read Corporate Watch’s 2006 report on CSR. It’s great but things are much scarier out there now.

The corporations have invested lots of money in it. And NGOs are so much closer to the companies now. The environmental NGOs used to be radical but now they advise and communicate with companies more, hoping they will listen. In some cases they do, but in most cases it’s temporary or very limited.

The corporates are more and more recruiting people from NGOs and using the NGO’s language.

Dialogue with NGOs helps corporates look like they are serious about being responsible. And for the NGOs, it makes them feel like their work is having some kind of effect if a company mentions them or responds to them in some way.

And the CR process is changing. The Corporate Responsibility reports that come out together with a company’s annual report have gone out of fashion. They just put the information on their websites now.

So those reports are becoming much shorter. Before companies would spend about £100,000 for a CSR report. Now it’s more like £50,000.

Many corporates still have what’s called a quarterly approach to CR because they have to report quarterly to shareholders. There is a big push for responsible investment, with many NGOs set up purely to get investors to care about specific CR issues, like animal cruelty. But this is still not picking up enough traction.

I would say that the biggest issue is how quickly CR policies can change. Most CR activities are set at the top, so as soon as you get a new CEO an entire programme can be scrapped, no questions asked. In fact – CR teams are usually the first to go during big budget cuts.

How do you see it changing in the future?

Increasingly corporates are getting more political messages out because they think it goes down well to take a stand on certain issues. For example a lot have embraced the Paris climate agreement and started the ‘We Mean Business’ campaign. So far the messages have been relatively good, but I worry about listening and trusting business – because in the end they are driven by profit and are completely unaccountable.

But CR, CSR, Corporate Sustainability, or whatever it is called, won’t really change. There will still be no real standard or benchmark for it. It is all designed by the companies – you cannot compare two companies with each other as they individually set their own standards for what is ‘social’ or ‘responsible’ or ‘sustainable’.

The identity of the interviewee has been kept anonymous at their request

Read more:

What’s wrong with Corporate Social Responsibility?

The post ‘We give them the language to hide what they are doing’: a CSR insider spills the beans appeared first on Corporate Watch.

UK fracking company and target of environmental protest, Cuadrilla, is using new legislation designed to increase corporate transparency to hide the identity of the people who control it.

According to documents filed at Companies House, the four individuals that ultimately control Cuadrilla Resources Holdings Ltd, the UK-registered parent company of the Cuadrilla group, are using an exemption in the government’s ‘Persons of Significant Control’ legislation, introduced last year to protect their identities.

Previous disclosures have shown Cuadrilla is majority owned by the investment funds Riverstone Holdings and AJ Lucas. But the attempt to withhold information suggests others may be involved, with a Chinese state-owned oil firm previously rumoured to be a possible investor.

The government introduced Persons of Significant Control (PSC) legislation in June 2016. Its aim, in the words of then Business minister Baroness Neville Rolfe, is to:

“help tackle abuse of corporate entities. This is part of our commitment to creating an environment of trust and accountability for business.”

Under the new legislation, details of the human individuals (rather than other companies) who own or control companies should be entered into a publicly-accessible register.

However there are certain exemptions that people can use to protect their identities. One, section 790ZG in the Small Business, Enterprise and Employment Act that brought in the requirements, allows details to be withheld if the individuals can prove they are at risk of violence, intimidation or “targeting by activists”.

Government guidelines describe the exemptions as particularly suitable for people running companies involved in defence or animal testing, or if your company “has been targeted by activists”.

When asked for this article about their use of the exemption Cuadrilla said it was granted after they provided evidence of “threats” that left their controllers at “serious risk of intimidation”:

“We can confirm that in the Autumn of 2016 Cuadrilla made an application to Companies House to protect the names and addresses of Persons of Significant Control (PSC) with regard to Cuadrilla on the basis that having this information in the public domain would present a serious risk of intimidation to them. We followed the procedure set out by Companies House by submitting a statement and supporting evidence to demonstrate there had been historical threats and a strong likelihood of ongoing threats to those individuals. This was then independently assessed by the registrar and permission was granted to protect the relevant directors’ details. The information supplied remains confidential and not on the public record.”

Cuadrilla is one of a very small number of companies whose controllers have been granted protection in this way. Freedom of Information requests have shown that Companies House had only accepted five of 33 applications made for non-disclosure under exemption 790ZG in the 11 months between the start of the PSC regime in April last year to this February.

This is not the first time a fracking company has benefited from state protection. The anti-fracking movement has been specifically targeted by the government in order to protect the industry, including through the use of the counter-terrorism strategy, Prevent. This has involved police advice to schools linking anti-fracking campaigners to domestic extremism and identifying environmentalists as being at risk of being drawn into terrorism.

The UK state has a long history of protecting companies from protesters and public scrutiny. In the late 1990s, for example, the new labour government introduced a raft of legal measures intended to protect companies from protesters, particularly if the companies’ activities were deemed significant to the national economy. The arms and pharmaceuticals industry in particular started to use a range of legal processes to discourage protest and criticism. Measures previously used to protect companies from protest include the application of anti-social behaviour orders (ASBOs), the use of bail conditions by the police as a form of extra-judicial punishment, use of blackmail and harassment law and extensive use of terrorist legislation (including as an intelligence gathering tool against activists entering or leaving the country), with protesters being identified as ‘domestic extremists’.

Who does control Cuadrilla?

Existing Companies House records show Cuadrilla is owned by Australian mining services company AJ Lucas and US investment firm Riverstone.

Riverstone is run by its two founders: the ex-Goldman Sachs financiers David Leuschen and Pierre Lapeyre Jr. Research by Greenpeace has previously identified Kerogen Holdings as the majority shareholder of AJ Lucas. Kerogen is co-owned and run by Ivor Orchard, who is also a Cuadrilla director.

All of them could be PSCs, as could Cuadrilla CEO Francis Egan. But these individuals are already publicly-known to be involved with Cuadrilla. If they had wanted to protect their home address, they could have applied for another exemption, section 790ZF, that is more readily granted and allows for just that.

This raises the possibility that there are individuals behind Cuadrilla who have not yet been identified.

Companies House records show another two of AJ Lucas’ UK companies – Lucas Holdings (Bowland) Ltd and Lucas Holdings (Bolney) Ltd – have also applied for the exemption, which suggests it is people connected with AJ Lucas rather than Riverstone that want to stay hidden

There have previously been rumours that the Chinese state-owned oil firm China National Offshore Oil Corporation (CNOOC) is involved with Cuadrilla through its major investment in Kerogen Capital. Being under the control of a representative of the Chinese state is exactly the sort of thing it would make sense for Cuadrilla and its backers to keep quiet.

Something to protect

Given their company’s track record, it is perhaps not surprising the people behind Cuadrilla would rather stay in the shadows.

Cuadrilla was the first company to carry out high volume hydraulic fracturing (fracking) in the UK, in Weeton, Lancashire in March 2011. That resulted in a small earthquake and a moratorium on fracking operations, which has since been lifted. The company was also rebuked by the then energy minister, Charles Hendry, for not reporting the incident, saying that the “failure” had exposed “weaknesses in Cuadrilla’s performance as a licensee”. Cuadrilla has the largest fracking licensing block in the country, but is still a relatively small exploration company, hoping to cash-in by going to equity markets or debt markets if they are successful in getting significant extraction operations off the ground. It also tested for shale oil in Balcombe, the site of major protests against the industry in 2013. Cuadrilla has been rebuked for a host of planning breaches and technical failures and have previously come under pressure for ‘bullying’ activists. After successfully applying for an injunction to remove a protest camp, the company then pursued one of the protesters, Tina Louise Rothery, for £55,000 legal costs. Despite being threatened with jail time, she refused to pay and was later told by a judge that the order to pay had been discharged.

Despite Cuadrilla’s aggressive approach, the fracking industry has so far failed to establish itself in the UK, having been hampered by widespread protest, legal opposition, low oil prices and the now lifted moratorium. However, 2017 looks to be a key year in the battle over fracking, with Cuadrilla being given the go ahead to continue operations at it’s Preston New Road site in Flyde, Lancashire and a host of other locations around the country coming under threat, including active sites at Surrey and Yorkshire. Opponents to fracking are also stepping up their efforts, with a rolling blockade at the Preston New Road site and a series of actions targeting companies supplying the fracking industry.

Hydraulic fracturing, known as ‘fracking’, involves injecting a mixture of high-pressure water and chemicals into a borehole, fracturing the rock and releasing gas. It has been shown to poison water supplies and cause seismic activity, radioactive contamination and increased greenhouse gas emissions. To find out more about fracking and shale gas, see our report and factsheets.

For information on the law and policing around fracking see Netpol’s guide.

For all the latest on fracking in the UK, including events, protests, active sites and background information see the mighty Frack Off.

The post People behind Cuadrilla win state approval to keep identities secret appeared first on Corporate Watch.

[responsivevoice_button]

The Byron burger chain is facing a wave of protests and condemnation for helping the Home Office organize a series of immigration raids on its London restaurants that led to the arrest of 35 of its workers from Albania, Brazil, Nepal and Egypt last week.

And while their company is collaborating with the Home Office to deport people, Corporate Watch has found that the owners of Byron are siphoning millions of pounds offshore.

Since buying Byron in 2013, investment fund Hutton Collins has already made £14m through a complicated financial scheme that sees money routed through the Channel Islands Stock Exchange to companies in Luxembourg.

Mayfair-based investment fund Hutton, run by a group of financiers and former bankers, bought Byron in November 2013 for £100m. Paladin, a ‘boutique’ private equity group co-founded by Caffe Nero boss Gerry Ford, has also bought a minority stake in the company, as have Byron’s management team, including founder and chief executive Tom Byng.

Accounts filed at Companies House for the Byron group show that the new owners made the majority of their investment in the form of a £82.7m loan, at an interest rate of 10%.

On the face of it this makes no sense – why would the owners saddle their own company with so much debt, at such a high interest rate (Byron is paying just 3% on the loans it has from banks)? Hutton could have put this money into shares in Byron, and received dividends when the company made a profit. But dividends are paid after a company’s profits have been taxed, whereas interest payments are taken from profits before they are taxed, thus potentially reducing a company’s tax bill.

In the 19-month period from November 2013 to June 2015, when the latest accounts were made up to, interest of almost £14m was racked up on these “shareholder loans”. Instead of receiving the money straight away, the owners have chosen to add it back onto the original loan so that more and more interest can be charged every year, leaving them with a hefty reward whenever they choose to sell the business on.

The scheme is in its early stages and how much UK corporation tax the interest payments will help Byron avoid remains to be seen. But it is already helping the owners move their earnings from the burger chain into tax havens.

Hutton’s offices are on Pall Mall but the Byron group accounts show that the investment fund made the loans through a Luxembourg-registered company, HC Investissements VI Sarl, which is where their interest will be sent. To make things more convoluted, Paladin private equity owns its minority stake in the loan through its own Luxembourg-registered company, Paladin Holdings Sarl, plus one in the Isle of Man – Paladin Byron Limited Partnership. Eric Bellquist, a former Lehman Brothers banker and now a Hutton Collins partner, is also listed as a partner in the latter, while Graham Hutton, also a partner at Hutton Collins, “has an interest” in TH Lord Sarl, another Luxembourg company with a stake in the loan.

Records show that these loans have been made through the Channel Islands Stock Exchange, which, thanks to a legal loophole, means the interest can automatically be sent to the owners tax free (click here for an explanation of the ‘quoted eurobond exemption’, as the loophole is known).

Hutton Collins owns a number of other UK businesses including the wagamama restaurant chain, the Hunter clothing brand and Healthcare at Home, which receives the vast majority of its multi-million pound income from the NHS.

Byron’s accounts also show how lucrative the business has become for founder and chief executive Tom Byng.

The highest paid director – presumably Byng – made £266,000 in 2015, with an extra £19,000 of pension contributions on top. On top of this, he has a nearly 1% stake in the shareholder loans and as such will have earned around £72,000 from the interest on these in 2015.

According to Right to Remain, most of the workers deported were paid the minimum wage of £7.20 per hour.

The post Byron Burgers appeared first on Corporate Watch.

Corporate Watch’s new publication, ‘Capitalism, What is it and how can we destroy it?’ provides an accessible introduction to capitalism and explores how we might bring about its ending:

What is capitalism? An economic system built on private property, markets, exploitation and profit, enforced by state violence. But also, digging deeper, a culture of fear and passivity, in which we learn to see the natural world, other people, and even ourselves, as objects to be owned and managed, bought and sold.

The first part of this book gives an introduction to capitalist economics in accessible, non-specialist language. It covers: the basics of economic systems; financial markets; the global economy and shifting world power; the roles of the state; crisis. The second part delves into how capitalism shapes our values and desires. Finally, it turns to resistance and rebellion. So how can we destroy this poisonous system, and start to create new worlds of freedom?

The book is available from our shop for £5 or you can download it for free, click here

The post How can we destroy capitalism? appeared first on Corporate Watch.

Throughout 2015 Corporate Watch has been organising a series of workshops on capitalism and climate change. The workshops have generated some fascinating, thoughtful discussions exploring the overlaps and interactions between climate change and capitalism, and what it means to have agency in tackling these enormous issues.

Informed by these conversations, we wanted to write some thoughts on the UN climate negotiations in Paris and the situation with anti-capitalism and the ‘radical’ climate movements around the world. We produced a poster and wrote the following short text to distribute during the summit. If you’d like to share your thoughts drop us a line at contact [ at ] corporatewatch.org

‘COP21 will fail. Everyone knows it. It is clear that the world’s governments, their intergovernmental organisations, and the corporations who sit at their tables, are not capable of taking the steps needed to prevent further climate change and the devastation it brings. The COP reflects and reinforces the interests of global capitalism, continuing exploitation while doing nothing to address climate change.

We know we are headed towards a world where life as we know it, human and otherwise, will be drastically changed. We are well beyond the point of ‘dangerous’ warming, and there are already irreversible changes to the earth’s climate system. The longer greenhouse gas concentrations rise the more serious the impacts become, the more tipping points we pass, the more species become extinct and, crucially, the less agency we have over the future direction of our world.

But despite what some say, we’re not doomed, it’s not too late. What we do in the next years and decades is all important and could be the difference between disaster and catastrophe.

In the short term we need to reduce emissions as fast as possible, and although the machines of the global economy are still pouring carbon into the atmosphere, inspiring struggles against fossil fuel extraction and other ecological destruction continue to flourish around the world. Global grassroots resistance to and creativity in the face of ecological destruction can achieve more than the negotiations ever will. If we are to stop the various ecological crises from becoming catastrophic then we need to fight directly against their root causes.

From famine, war and oppression to dull and demeaning work, the climate crisis is only the latest symptom of this senseless system of endless economic growth on a finite planet. No business can invest in a future we want to be part of, no governments can make the changes we need for us. It is time for us to provide for ourselves, to find new ways to relate to each other and the world around us, and to be able to live without fear of persecution. In order to stop further climate chaos, we – as individuals, groups and movements- need to take control over our own lives.

Those with wealth and power, predominantly based in the geographic Global North, have a legacy of centuries of exploitation of labour and natural resources, and a vicious system of racism and exclusion. We see that national armies and the police exist primarily to preserve this current order – as we have already seen in Paris on the eve of COP21. But using principles and practices of solidarity, autonomy, cooperation and direct action, we continue to fight back.

As the world warms, and impacts on scarce vital resources increase, we can expect to see a rise in militarism, securitisation, and repression. But there will also be a rise in disobedience, defiance and resistance. In these turbulent times, possibilities will arise and openings will appear. We need to be bold, and when the time comes, using diversity of tactics and strategies, take action and attack capitalism and oppression in all its myriad forms, all the while imagining and creating alternative ways of living.

While our struggles are shared, they are not homogeneous, and each is relevant to their individual contexts. But they also need to be interconnected, so we can communicate, learn and develop mutual understanding. If ecological threads can be woven through the many existing struggles around the world we can continue to dissolve the false separation between the social and ecological. Building on the rich history of many generations fighting oppression, this is not the beginning but a continuation. Across the globe struggles are growing, spreading and adapting. If we are to succeed we need all these currents to flow alongside each other, each following their own path, mixing and building until collectively they become unstoppable.

“We live in capitalism, its power seems inescapable – but then, so did the divine right of kings. Any human power can be resisted and changed by human beings..”

Ursula K. Le Guin

Please note: the use of dinosaur imagery is intended as a metaphor on capitalism, fossil fuels and extinction. We have nothing against dinosaurs and in no way intend to imply that they are responsible for climate change or oppressive social systems.’

The post Capitalism or the World appeared first on Corporate Watch.

Transport for London (TfL) is currently seeking to team up with private sector partners to give it new powers, especially regarding land development, putting public land and affordable housing at risk, as well as creating more financial risk for TfL itself.

The current TfL bill could be crucial to the future of how public land is developed in London. Clause 5 of the bill would enable TfL to form ‘limited partnerships’, either as a general or limited partner, and to promote and assist limited partnerships. Limited partnerships lack transparency, in part because such partnerships do not have to file accounts do not have to file accounts at Companies House.

Limited partners have limited liability, which means they have no management authority and are only liable on debts incurred by the firm to the extent of their registered investment, whereas general partners can have unlimited liability. TfL would face significant problems whether it was a limited or general partner.

TfL is a local government body controlled by a board of members appointed by the Mayor of London and Boris Johnson chairs the board. At present TfL has to be relatively transparent, and in fact makes a big thing about transparency, but if this bill is passed the door will open for TfL to become much less transparent.

There have been four petitions against Clause 5 of the bill from the National Union of Rail, Maritime and Transport Workers (RMT) and three members of the public. Successfully petitioning against the bill meant there had to be a debate about it in the House of Commons where petitioners had a chance to have their say, which happened on 9 September. The transcript of thedebate can be read here.

The purpose of the bill is to provide TfL “with a broader set of powers so that it can meet its business needs more flexibly” and to enable it to maximise the value of its assets, which its current status does not allow. Currently, TfL may only form corporate bodies including companies and limited liability partnerships. The bill purports to enable money to be saved for taxpayers and farepayers. “TfL proposes that it may form a limited partnership only for the purpose of carrying out its functions, which prevents speculative arrangements.” However, this seems unlikely in reality. If this bill is passed, surely it opens the door for more speculative developments, such as the one at Earls Court (see below).

John McDonnell MP (Labour), convenor of the RMT Union parliamentary group and one of the objectors to the bill, expressed a complete lack of confidence in the ability of TfL to go into partnerships with the private sector “without either creating a disaster or being ripped off” and reminded people of what happened with TfL and its relationship with the Public Private Partnership (PPP) “which was a disaster”.

In 1999, London Underground Ltd (LUL) was restructured in preparation for a Public Private Partnership (PPP) and in 2000 TfL was created as part of the Greater London Authority (GLA) by the Greater London Authority Act 1999. However, TfL did not take over responsibility for the London Underground until 2003, due to widespread resistance to the PPP. The fight against the PPP lasted for five years and involved many groups and individuals, such as the Campaign Against Tube Privatisation, with the RMT often being the most militant in their resistance to the various stages and aspects of privatisation, such as private contractors taking more health and safety risks leading to more passenger deaths, such as the Potters Bar crash in 2002.

The PPP is a story of private companies sucking huge quantities of money out of the Tube while failing to deliver their promises to adequately maintain and improve the system. This has been documented in detail by Janine Booth in her book Plundering London Underground which outlines the history of public and private ownership of London Underground over the last century and a half.

The current bill represents the latest stage in privatisation of the Underground. It is likely that some of the contenders for previous rounds of privatisation will be some of the companies that TfL is seeking to enter into partnerships with now. Corporate Watch has learnt that the TfL procurement process to find development partners is likely to start at the beginning of 2015, with TfL procuring a small number of joint venture partners to work with to develop their property estate. TfL expects this to attract a significant amount of interest from the property press and media more broadly.

In the commons debate, McDonnell said that the main balance of interest in the partnerships TfL are proposing will be with the private sector, with the public sector being left with the responsibilities, which has been the case throughout TfL’s participation in developments with private sector entities. He said “There is a real worry that giving Transport for London these powers will result in a virtual frenzy in TfL—certainly under the guidance of the current Mayor—to convert land in central London for uses other than transport usage.”

Clause 5 means that TfL, without Secretary of State approval, can become a sizeable landlord with commercial lets and borrow against those revenue streams, but the bill does not make clear what the scale of operation TfL is looking at is. McDonnell highlighted that limited partnerships open TfL up to unlimited liabilities and a large amount of risk and that it is concerning that TfL’s only justification so far has been that these partnerships are the preferred route of the developer, suggesting that this bill is largely due to the development companies that have approached TfL. In addition, limited partnerships introduce a real vulnerability to the tax payer, especially the London council tax payer.

The bill will now go for further scrutiny at the Opposed Bills Committee, on a date to be confirmed.

The combination of a number of factors is cause for serious concern: the possibility of the bill enabling TfL to form limited partnerships, which would enable it to team up more easily with companies such as Capital & Counties Properties Plc (Capco) and in so doing be less transparent about their operations; the amount of public land TfL owns; the fact that TfL is in need of money because its central funding from the government has been cut; the case study of Earl’s Court showing that similar joint developments do not involve proper scrutiny and consultation; and MIPIM (the world’s largest property fair) happening in the UK for the first time in October.

If the bill is passed, it would set a precedent whereby the development of public land by private companies becomes much easier.As a partner in a joint venture with another company, TfL would not be bound by the same regulations as it would be on its own, which means TfL could get away with not taking responsibility for the consequences of joint ventures. There are serious concerns that we could see TfL and a small group of developers ‘regenerate’ every inch of London without consideration for local communities, genuinely affordable housing etc. This would depend on local councils up to a point, but Boris Johnson still has the power to call planning applications in like he has with Mount Pleasant, completely bypassing the council.

Boris’s 20 year development plan for London, the London Plan, is still in the process of being amended since it was published by Boris in July 2011. The group Just Space, a network of community groups cooperating on London planning, has outlined the problems with the plan and is monitoring what is currently happening with the public examination of the Mayor’s proposed changes to the London Plan. Many of the groups in Just Space report that the London Plan entails rapid urban change in the form of the creation of space for corporate activity, which directly threatens the aspects of the current London economy which are diverse, multi-ethnic and local. The current TfL bill seems to go hand-in-hand with Boris’s Plan to increase the polarisation of London’s communities.

TfL potentially has London’s biggest property development portfolio, with 5,700 acres of land across London and approximately 800 archways, meaning Boris Johnson is now one of the largest public sector landowners in London. In April 2012 the Mayor inherited 635 hectares and the Greater London Authority (GLA) group has extensive property holdings via its functional bodies. The GLA’s land and property database, which includes TfL-owned land, can be found here.

How TfL develops its land is of public concern, because it may open the door for many more companies to follow in the footsteps of cities like Hong Kong.In the quest for more private income for TfL due to cuts to its government funding, Boris has been inspired by the Hong Kong Metro. The company MTR runs the Hong Kong metro and almost half the company’s revenue now comes from property rental and development. The model it follows is one of exploiting the situation whereby the freehold to a lot of land in Hong Kong is government-owned, so MTR buys the leaseholds at market rates but is then gifted development rights, meaning the company is able to capture any increases in the land’s value resulting from a new metro station via the deals it extracts from developers of new housing, offices and shopping centres over and around the line.

TfL is being forced to find private sources of money, because its government grant was cut by 12.5% in the 2013 spending round. So it is attempting to save money by selling property, including London Underground’s headquarters at 55 Broadway and the Lillie Bridge depot at Earl’s Court. Successive governments seem to want London Underground to ‘pay its way’, but studies of urban transport around the world always conclude that mass public transit in a city cannot be self-financing, it needs to be publicly owned and subsidised.

TfL now plans to increase its property-based revenues by half by 2018, with initiatives such as new retail ventures. It also hopes to extract a new level of development income from Crossrail and the Battersea Northern line extension. But at what cost to the cohesion of our society, the environment, the safety of the Underground network and the lack of genuinely affordable housing? There have been demonstrations in Hong Kong about lack of affordable housing relating to the corporate development of the transport systemand there has been resistance in London to similar corporate housing and development, which looks to get worse if this TfL bill is passed.

Capco and Earl’s Court case study

In February the Boards of TfL and the developer Capco approved terms for a proposed joint venture to ‘develop’ Earl’s Court & West Kensington in west London, which would be owned 63% by Capco and 37% by TfL, with Capco as the general partner and business manager. In March TfL announced the ‘Earls Court Partnership Limited’ plan, which will enable the development of Earls Court One and Two in line with the Earls Court “Masterplan”. TfL’s Commercial Development Director Graeme Craig said:

“This is the first example of our new approach of retaining and investing in our assets across London, working in partnership with leading developers like Capco, which will deliver real long-term value for fare and taxpayers.”

As John McDonnell MP (Labour) and Andy Slaughter MP (Labour) made clear in the recent debate in the commons, the Earl’s Court “Masterplan” joint venture between Capco and TfL would have been a limited partnership had this been an option at the time. In the debate, the “Masterplan” was referred to as an example of how a TfL joint venture has exposed the local community to “almost devastation”, “extreme ruthlessness” and not only a “degrading exploitation of public assets but a debacle”.

TfL’s joint venture with Capco will demolish 22 acres of social housing, the two Earls Court Exhibition Centres, which bring over £1.3 billion a year to the local and national economy, and the London Underground Lillie Bridge Depot, which employs over 500 people. TfL owns the freehold to the Earls Court exhibition centres and Capco is the leaseholder of both sites.All of the sites are to be replaced by luxury flats well out of reach of the ordinary person. The first part of the demolition is due to start in the middle of November 2014.

Capco has been criticised by the London Assembly for putting local businesses under ‘inappropriate pressure’.In Capco’s 2013 annual report it is telling that the corporate responsibility section on local communities does not mention local communities at all.

Dave Hill has been writing extensively in The Guardian about Earl’s court. He says:

“…it is, without doubt, a vividly distinctive and revealing case study of Conservative thinking on urban development, housing, planning powers and social policy put into radical effect at local government level, supported by regional (City Hall) and national government.”

Dave Hill criticises “the eagerness of the mayor and his borough allies to transfer public resources into the hands of private interests for whom the greater good of London and most Londoners is, to put it mildly, not a top priority”.

The majority of residents on the West Kensington and Gibbs Green estates do not want to move to the new development and have voted for community control of their estates. There is a vibrant local campaign – Save Earl’s Court– against many aspects of this development, with a wide range of activists, journalists and locals campaigning and reporting on what is going on.

MIPIM – the world’s largest property fair – coming to London

If all this wasn’t already enough, MIPIM (Le Marche International des Professionnels de l’Immobilier, International Market of Real Estate Professionals) is happening in the UK for the first time in October, where developers and property professionals will be planning how to get their hands on millions of acres of public land. MIPIM has been running for 25 years in Cannes, France, bringing together the most influential players from all international property sectors and offering unrivalled access to the greatest number of development projects and sources of capital worldwide.

Boris is at the forefront of MIPIM UK and will be delivering a keynote speech to open the conference. Capco own Olympia where MIPIM is being held and no doubt TfL will be looking to make some deals in October. To get an idea of the tone of the conference, there is a session called ‘Investing in affordable housing: Is it worth it?’. MIPIM will create unaffordable, insecure housing around the UK and the undemocratic process of MIPIM affects who controls land and how it is used, which contributes to the corporate takeover of community space and public services.

Local councils also participate in MIPIM, mostly to enter into deals over public land. However, some councils are critical of MIPIM or have decided not to attend. Tower Hamlets Council said that it will not be represented at MIPIM UK and Councillor Rabina Khan condemned the model of profit-driven housing policy represented by MIPIM, arguing that public land should be used to build the homes we need, not for speculative greed. This is very promising as it could be used to try to get other councils to follow suit.

There is a growing network of people working together under the banner No To MIPIM, which is planning actions and an alternative conference on housing issues during MIPIM 15 – 17 October in London.

The post Transport for London seeks new powers with developers appeared first on Corporate Watch.

Companies receiving lucrative government contracts to run care services looking after tens of thousands of vulnerable people are avoiding millions of pounds in tax through a legal loophole.

The firms are cutting their taxable UK profits by taking high-interest loans from their owners through the Channel Islands Stock Exchange, an investigation by Corporate Watch and The Independent has found. By racking up large interest payments to their parent companies, they are able to reduce their bottom line and cut their tax bills.

The news will increase concern about NHS reforms that are seeing private companies take more responsibility for services. It also raises questions about the Government’s commitment to tackling corporate tax avoidance, which David Cameron has said “corrodes public trust”.

Over the course of this week, Corporate Watch and the Independent will reveal how more than 30 UK companies, including some of the UK’s most recognisable brands, are benefiting from this legal tax loophole, known as the quoted Eurobond exemption. HMRC considered restricting the use of the loophole in 2012 but never took action.

The care companies known to benefit from the loophole are: Partnerships In Care (several of whose mental health facilities have recently failed inspections), Independent Clinical Services, Priory Group, Acorn Care, Tunstall, Lifeways, Healthcare At Home, Spire Healthcare and Care UK.

Margaret Hodge, chair of the Public Accounts Committee, said: “Companies have a duty to pay their fair share of tax relative to the profits they make in this country. Yet it seems every week brings a new revelation of another business that is using artificial structures to move profits out of the UK, seemingly for no purpose other than to avoid tax.

“The case of these private health companies, which The Independent has brought to my attention, I find particularly depressing. These are companies who get their income overwhelmingly from taxpayers’ money, for the purpose of providing a vital public service, yet do not appear to be making their fair contribution to the public purse.”

One of the companies, Partnerships in Care, managed to turn what would have been a hefty tax bill into a tax credit in 2012, according to accounts filed at Companies House. It owes £321.9m to its owners Cinven, a European investment firm. By paying interest of £29.7m on these borrowings in 2012, it helped to turn a healthy operating profit of £31.7m into a pre-tax loss, leaving the group with a tax credit of £629,000.

Meanwhile, several of the company’s secure hospitals for mental health patients have recently received damning inspection reports. A spokeswoman for the company acknowledged that it had recently received two “major warning” notices from the Care Quality Commission but said that in 93 per cent of inspections of their hospitals between July 2012 and August 2013, they were assessed as compliant or requiring only minor improvement.

Although the interest rate on the loans taken by these care companies is subject to scrutiny by HMRC, they are all significantly higher than the rates they are paying on loans from third parties such as banks – meaning they can reduce their profits and therefore their tax bills, while the parent companies still receive a steady flow of cash back into their accounts.

Tunstall, for example, is paying a 16 per cent interest rate on its borrowings from its owners the Charterhouse and Bridgepoint private equity funds – compared with the 5 per cent average rate on its bank loans.

The company, which provides over-the-phone care services to almost every council in the UK and the new clinical commissioning groups, avoided up to £19m in UK corporation tax in 2012, after £76.1m in interest on the loans from its owners virtually wiped out its operating profit, leaving it with a tax bill of only £548,000.

HMRC would usually deduct a 20 per cent “withholding” tax on interest payments going overseas. But as the loans are issued through the Channel Islands Stock Exchange, the exemption means they leave the UK tax free. If their owners had provided funds to the companies by investing in shares instead of issuing loans, any dividends would be paid after the companies’ profits had been taxed. Other operating expenses could also influence their overall tax bill.

Other companies previously found to be using the loophole include Global Radio, owners of radio stations including Classic FM, Capital and Heart, and water companies including Northumbrian, Yorkshire and Thames Water.

British Private Equity and Venture Capital Association director general, Tim Hames, said: “The Quoted Eurobond Exemption is designed to encourage inward investment by global investors, many of them pension funds who are exempt from tax. Those investors who are not exempt pay tax on the interest. Removing the exemption would mean less investment coming into the UK, and into social care providers where it is desperately needed. HMRC reviewed this matter last year but accepted the investment case for its retention.”

Independent Clinical Services did not respond to The Independent’s requests for comment and its owners Blackstone declined to comment. A spokesman for Spire and Partnerships in Care said that the arrangements “are common across the private equity industry” and interest levels were “reviewed and agreed with HMRC”.

Spokespeople for Healthcare at Home, Lifeways, Priory Group, Care UK and Tunstall pointed out that the companies were fully compliant with UK tax laws. A spokesman for Acorn did not deny using the tax loophole but said the analysis was inaccurate because it was “based on incomplete information”.

An HMRC spokesman said: “In March last year we ran a consultation to consider aspects of the taxation of interest including the circumstances in which the exemption from withholding tax on quoted Eurobonds would apply.

“The proposed amendment to the exemption would have applied to companies whether their customers were in the public or the private sector, but in the light of concerns about the possible negative impact on inward investment it was decided to keep this complex area of tax law under review.”

Partnerships in Care

Owner: Cinven is a leading European private equity firm. Since the firm was founded in 1977, it has completed transactions valued at more than ?70bn (£59bn).

Services: The vast majority of its £171.1m revenue comes from the NHS for specialist hospitals dealing with mental health issues, learning disabilities and substance abuse.

Several of the company’s secure hospitals for mental health patients have recently received damning inspection reports, which criticised poor patient safety, critically low staffing and a lack of respect for basic dignity. The Dene, a medium-security psychiatric hospital in West Sussex, failed all seven categories of a recent inspection by the Care Quality Commission and enforcement action was taken. Annesley House, a psychiatric hospital run by the company in Nottingham, failed four out of five areas inspected, with growing numbers of whistleblowers alleging that patients were treated in a “disrespectful” and “degrading” way.

Duty of care: The companies under scrutiny

Partnerships in Care

Owner: Cinven is a leading European private equity firm. Since the firm was founded in 1977, it has completed transactions valued at more than ?70bn (£59bn).

Services: The vast majority of its £171.1m revenue comes from the NHS for specialist hospitals dealing with mental health issues, learning disabilities and substance abuse.

Several of the company’s secure hospitals for mental health patients have recently received damning inspection reports, which criticised poor patient safety, critically low staffing and a lack of respect for basic dignity. The Dene, a medium-security psychiatric hospital in West Sussex, failed all seven categories of a recent inspection by the Care Quality Commission and enforcement action was taken. Annesley House, a psychiatric hospital run by the company in Nottingham, failed four out of five areas inspected, with growing numbers of whistleblowers alleging that patients were treated in a “disrespectful” and “degrading” way.

Total owed to owner: £321.9m at 10 per cent

2012 interest to owner: £29.7m

Potential tax avoided in 2012*: £7m

Healthcare at Home

Owner: Vitruvian Partners is a European private equity firm.

Services: Britain’s largest home healthcare provider, sending in nurses to people’s homes. The vast majority of its £837.6m revenue comes from the NHS.

Total owed to owner: £140.8m at 12 per cent

2012 interest to owner: £11.5m

Potential tax avoided in 2012**: £1.2m (after HMRC disallowed the rest to be deductible)

Independent Clinical Services

Owner: Blackstone is the world’s largest manager of alternative assets, whose senior executives earn millions of dollars a month.

Services: One of Britain’s largest independent providers of nursing staff to the NHS.

Total owed to owners: £144.6m at 10 per cent

2012 interest to owner in 2012: £13.5m

Potential tax avoided in 2012: £3m

Spire Healthcare

Owner: Cinven

Services: Private hospitals

Total owed to owner: £756.7m at 12 per cent

2012 interest to owner: £81.2m

Potential tax avoided in 2012: £20m

Lifeways

Owner: August Equity Partners (taken over by Omers Private Equity, 8 June 2012, after most recent accounting period).

Services: Specialises in supported living and care homes for people with disabilities. Recent inspection reports from the Care Quality Commission show that several homes and services owned by the company have had problems with staffing levels and standards of care.

Total owed to owner (August):

£52m at 12 per cent

2012 interest to owner: £4.4m

Potential tax avoided in 2012: £1m

Priory Group

Owner: Advent International Corporation is one of the world’s leading global buyout firms. Services: The group looks after more than 7,000 people, caring for older people and those with learning disabilities. Some 87 per cent of its funding comes from the NHS, or other public funding sources.

Total owed to owner: £222.7m at 12 per cent

2012 interest to owner:

£23.9m

Potential tax avoided in 2012: £6m

Acorn Care

Owner: The Ontario Teachers Pension Plan board is Canada’s largest single-profession pension plan with $129.5bn (£78bn) in net assets. It works with 80 local authorities and receives referrals from local authority education, social care and health departments for educating and caring for children with special educational needs. It receives the vast majority of its £110.6m revenue from public bodies.

Total owed to owner: £79m

2012 interest to owner: £16.6m at 16 per cent

Potential tax avoided in 2012**: £4m

Care UK

Owner: Bridgepoint

Services: One of the biggest providers of health and social care services in the UK. It runs GP centres, hospitals and care homes and provides support for people within the community. About 100 elderly and vulnerable people complained about the standard of home care offered since Care UK took over visits to 300 clients in Broadland, Norfolk, in July.

Total owed to owner: £116.1m at 16 per cent

2012 interest to owner: £22.8m

Potential tax avoided in 2012: Up to £5m (depending how much interest HMRC disallowed to be deductible)

Tunstall

Owners: Charterhouse and Bridgepoint

Services: Telehealth support used by many local authorities.

Total owed to owners: £557.8m at 16 per cent

2012 interest to owners: £76.1m

Potential tax avoided in 2012: £19m

* The amount of tax potentially avoided for each company was estimated by applying the rate of corporation tax to the amount of interest paid or accrued on loans from owners, with appropriate deductions where companies have disclosed them. The calculation assumes that the loan amount would be invested as equity by the owners instead.

** These companies made operating losses in 2012 but the additional tax credits from the interest can be offset against future years’ tax charges.

The post Firms running NHS care services avoiding millions in tax appeared first on Corporate Watch.

The post Corporate engagement at Hopenhagen appeared first on Corporate Watch.

Introduction

The first Commercial Corporation was created by direct unlawful action by the members of the company. From that date onwards our democratic right to control what Corporations do has been eroded and diminished until no control remained at all. Corporations and Governments have defined this erosion of control as being the liberation of Corporations from the shackles of the past. Corporations have achieved this “liberation” by breaking the law on mass until the Courts and the Government gave up trying to control them.

The State (through the Government and the Courts) has:

1. Abandoned rules which forbade the creation and continuance of Corporations that acted in a manner that caused the public harm (introduced in 1720 – repealed 1825);

2. Abandoned state control over the types of business operation that could become Corporations (finally abandoned in 1844);

3. Restricted then abolished the right of anyone who isn’t the “Corporation” to challenge the right of the Corporation to take various courses of action (abolished by the Companies Act 1989); and Transferred from the Government to the Courts and then to the Directors of the Corporation itself the final say over what any Corporation has the power to do.

4. A Corporation is special because by becoming a Corporation (a process called “incorporation”), a thing is given a distinct legal identity separate from the people who run it. This shields those who actually run the business from responsibility for their actions.

Rather than people carrying out business in their own name, a Commercial Corporation is considered to be a person in its own right. The Courts, when dealing with a Corporation, accept the fiction that the Corporation has a birth, a death (although a corporation can live forever) and more importantly, entitlement to human and civil rights. A Corporation, which exists solely on paper, can assert that it has the right to do something (eg pollute) and that that right can prevail over a real person’s right to object.

A Commercial Corporation can create for itself a multiple personality with separate Corporations (all owned by the same parent Corporation) existing simultaneously. All risky and dangerous operations carried out by Corporations are carried out by subsidiaries. The parent Corporation, being only a shareholder in the subsidiaries (and therefore a separate legal person) cannot in any way be held responsible for the actions of the subsidiary . These subsidiaries (and/or their immediate if not ultimate parent Corporations) can be sited “off-shore” in a national register of companies which does not allow you to find out who is the ultimate parent Corporation (ie you cannot find out who, theoretically, should be responsible).

A subsidiary Commercial Corporation can be created owning no assets. It can then decide for itself to accept the risk and responsibility of transporting crude oil and nuclear fuels (by air as well as by road and sea), running chemical plants, creating new drugs and herbicides, drilling and excavating sensitive areas.At all times this subsidiary corporate person bears the sole responsibility for its actions. If anything goes wrong, the subsidiary simply folds and disappears. The parent corporation, investors and directors know that, should anything go wrong, we are not entitled to look beyond the veil of the subsidiary Corporate person to see if the real persons who took those decisions should have been allowed to do so.

Whilst Corporations (as legal persons) do not have the right to vote, they do have the right to lobby and fund political parties. They choose to pollute and exploit natural resources not only in their own land but in other lands, often without their new neighbours having any say over their presence. Corporations also have enormous influence in determining the manner in which resources are allocated and the nature of their products and markets. Whilst it is in the public’s interest that resources be used sparingly and in a sustainable reusable manner, Corporations choose to create disposable products which require constant replacement/repurchase. The Corporations’ interest in maximising sales and profits is in direct conflict with our own democratic right to choose how finite resources are allocated.

Modern Corporations are given not just the right to exploit resources but also the right to choose how they are exploited, marketed and packaged leaving the public with only the right to choose the method of cleaning up the mess left behind.

As neighbours of these Corporate Persons (in that we share the same environment and society) and as citizens, why do we have so little say how Corporations use their rights and powers? Why is it that these Corporate persons have no responsibility for their actions?

Not-for-profit corporations

The fiction of a corporation being a distinct legal person does exist for other collections of people. The concept of the corporation was initially created for charities such as churches, schools and universities, clubs, hospitals and so on and then latterly extended to municipal councils. These “not-for-profit” corporations were, by their nature, intended to advance the public good.

Before the seventeenth century incorporation was used only as a tool for not-for-profit entities. By making a hospital (for instance) into a corporate person its function was simplified and difficulties that could otherwise occur when control passed to later generations (death duties, transfer of assets etc.) could be avoided. It clearly served the public good for the long-term administration of such bodies to be simple.

Not-for-profit corporations had constitutions drafted and approved by the Crown or the Government, which set out their powers and the objects the corporation sought to attain. If a corporation acted outside its constitution (i.e. sought to attain an objective not within its objects or not within the spirit of its constitution), it was acting “ultra vires” and the Court had the power to declare the offending action void and unlawful. Before the development of Commercial Corporations, this doctrine of ultra vires was relatively simple but rarely used . But, making a profit (for what was always a charitable organisation) was clearly ultra vires.

Unincorporated businesses such as cooperatives or partnerships (including law, accountancy and architects firms) have no legal identity of their own. Each partner retains a share of responsibility for the actions and decisions taken. The name of their business remains, before the law, merely a name by which to identify the collective.

When we talk about companies we are talking about Commercial Corporations. The term “company” originates from the term “joint stock company”, and means the same thing as the term Commercial Corporation. A non-corporate “business association” is not a company at all but a partnership or a cooperative.

Very Brief History of Corporate Development

The development of Commercial Corporations occurred in three waves. First, when the financial demands of colonial expansion grew too great, not-for-profit corporations were created to assist in carrying out trade with the colonies. These trade associations started, fraudulently, trading for a profit, encouraging others to do the same. Following the initial profits of these fraudulent trade associations, Corporations were created by the Crown through Royal Charter (“Chartered Corporations”) in the 1600s and early 1700s to carry out the business of “merchant adventuring” or “colonial plunder” (choose according to your political viewpoint).

Commercial Corporations reduced greatly in number after the South Sea Bubble crisis in 1720 until there was a second wave of development with the creation of Corporations by Act of Parliament to build canals, waterworks and later railways from the end of the 1700s onwards. The actions of these “Statutory Corporations” were closely controlled by the State and all general business activity remained in non-corporate forms.

The third wave of development occurred following the Joint Stock Companies Act of 1844. This allowed Corporations to be created by a simple act of registration. It is this “Registered Corporation” which is the modern form that we recognise. These Registered Corporations then undertook a 100 year long struggle using direct unlawful action to “free” themselves from the remaining controls imposed upon them by the Government and the Courts.

First Wave (1600 – 1720)

Businesses at the time typically involved small numbers of people operating as partners, sharing the risks of the business. Each partner retained individual responsibility for all the actions of the partnership.

Towards the end of the 1500s Charters of Incorporation from the Crown were granted to trade associations. These trade associations did not carry out trade in their own names but were not-for-profit corporations. The Crown would grant the trade association a monopoly over a narrow area of trade. Business partners could become “members” of the trade association so entitling them to carry out business in that trade. However, each business would trade independently, with each business’s partners sharing ownership of each business’s stock with the partners remaining individually responsible for each business’s actions.

The East India Company received its Royal Charter in 1600. When incorporated it too was merely a trade association, its members having the right to share in the monopoly on trade in “the Indies”. A business partnership could become a member of the East India Company and so be licensed to trade to and (more importantly) from “the Indies”.

During the course of the century, all the individual member/ partners started to amalgamate their stock until they became one big partnership owning all the stock jointly. That is, the East India Company had only one partnership operating within it carrying out all the trade.

Later in the seventeenth century , the stock from being owned collectively by all the member partners, became owned by (ie ownership was transferred to) the East India Company itself. The partners (who were all members of the corporation in its nature as a trading association) swapped their shared ownership of the stock of the business partnership for a share in the “Joint Stock” of the Corporation itself. The Corporation then traded this stock in its own name and made its own profit. The profits were then distributed amongst the members/shareholders.

So the East India Company came to be the first Corporation to operate for a profit. Or the first Commercial Corporation (or Joint Stock Company) owned by shareholding members, carrying out trade in the person of the Corporation. The first Commercial Corporation was created by the actions of its members alone. Not by the Government or the Courts or the public deciding it was a good idea but simply by the members of the East India Company choosing to act in that manner. As a result, there was neither debate on the ethics of allowing a business association to use the corporate form nor consideration of how this development might affect the public in general. The East India Company was undoubtedly exercising powers not within its constitution (i.e. “ultra vires”) by operating for a profit. It was without doubt acting unlawfully. No one really challenged this.Trading as a Commercial Corporation offered clear advantages over business partnerships. These advantages greatly exceeded the advantages to a hospital or other charity being incorporated as the Corporate form effectively protected from many of the risks of business.

The Corporation continued to exist even if the original partners died or transferred their shares. The Corporation could bring and defend legal actions in its own name rather than the names of the partners. The Corporation would not die, so did not pay death duties. If one shareholder became bankrupt, company assets could not be used to pay his debts as company assets belonged to the Corporation (its own separate legal person) and not the shareholder. Although not fully realised at the time, if the Corporation couldn’t pay its debts, shareholders own assets could not be used to pay the debts of the company. However, the Courts did at that time allow creditors to sue the shareholders and directors when a Corporation could not pay its debts.

The corporate form drew a veil between the actions of the Corporation and the people directing it, protecting them from responsibility for the actions of the Corporation. It avoided the individual and collective responsibility for all business activities that previously existed.

Over the course of the late 1600s until 1720 many other trade associations started to trade unlawfully on joint stock so becoming Commercial Corporations. The Crown began to grant charters to new Corporations expressly for them to trade as Commercial Corporations. In time, new Corporations were formed by both Charter and Act of Parliament to develop new patents and domestic trade, by now asking for outside investors to provide the finance.

Dubious Corporations were created and persons masqueraded as Corporations to fraudulently obtain investors money. The greatest of these was the South Sea Company. Formed in 1711, it was given a monopoly on trade to ports in South America then under Spanish control. Shares in the Company were traded wildly, speculating on the rich profits that would be made as soon as access to the port was obtained. The investors only realised that access to the ports would never be obtained when the company founders fled the country. The share price collapsed overnight to nothing, triggering similar collapses in numerous other similar companies causing the first stock market crash.

The East India Company created further problems for the Government. Its vast expansion in India meant that it not only had a monopoly on trade but was also in charge of the army, the roads, food supply, in fact all the domestic and foreign powers of a government. The East India Company had, through its business activities, conquered and ruled the whole of India. The Government realised that British foreign policy must be reclaimed from the East India Company as well as others such as the Levant Company and Hudson Bay Company.

1720

The Government responses were, first, to wind up or nationalise many of the Chartered Corporations, bringing their territories into the British Empire. Then, to control fraudulent activity, the Government created the “Bubble Act” of 1720.

This Act provided in section 18 that all commercial undertakings (both Corporations and partnerships) “tending to the common grievance, prejudice and inconvenience of His Majesty’s subjects” would be illegal and void. The Act also banned speculative buying and selling of shares and outlawed stockbroking in such shares. After 1720 (until 1825) shares could only legally be sold to persons genuinely taking over a role in running the Corporation or partnership.

Second Wave (1720 – 1825)

Between 1720 and 1844 new businesses that might previously have sought incorporation were operated as partnerships. Investigations into the old Corporations found many instances of fraud and a large number collapsed due to debts. Crown Servants became reluctant to grant Charters for new Commercial Corporations fearing that their creations would fall foul of the Bubble Act. However, the Bubble Act was rarely used. Only one prosecution under the Act is reported to have occurred. The general public did not have the resources to use the Act and the State did not appear to have the desire.

Parliament at first was wary of creating new Corporations by Act of Parliament. However, there was a public need for canals and waterworks to be built and the State did not have the money to finance such schemes without the assistance of outside financiers. The financiers where not prepared to put up the money if it meant that they would be responsible for all debts and liabilities of the project. The corporate form appeared ideal.Parliament approved specific Corporations to be created by Act of Parliament (“Statutory Corporations”). These Corporations were similar to those founded to build the Channel Tunnel and develop Docklands in recent years. An Act of Parliament would authorise the creation of a Corporation for a specific and narrow purpose and allow it to bring and defend legal actions in its own name (so protecting the financiers from personal responsibility should the Corporation fail).The general view at the time was that Corporations should only be created for very specific purposes. Adam Smith commented in 1776 that the only trades that justified incorporation were banking, insurance, canal building and waterworks. He believed it was contrary to the public interest for any other businesses or trades to be incorporated and that all should be run as partnerships .

Third Wave (1825 – 1998)

Between 1825 and 1856 a series of Acts of Parliament abandoned the controlled formation of Corporations and created the modern Registered Corporation. Two Presidents of the Board of Trade, Huskisson and more importantly, Gladstone sponsored these moves. The aim was widescale liberalisation of the market – often called “laissez-faire” capitalism. This was part of a wider battle between the new merchant class and traditional landowners.In 1825 the Bubble Act was repealed, allowing shares to be traded freely. Also repealed was the rule that, for a Corporation to be allowed to trade, “it must not tend to the common grievance, prejudice and inconvenience of His Majesty’s subjects”.

The Joint Stock Companies Act of 1844 created the modern form of Corporation for general business and trade. Via a simple process of registration, a Corporation with its own legal identity could be created (“Registered Corporation”) to carry out any stated commercial activity, subject to approval by the Company Registrar. The Corporation would be required to register its constitution including an “objects clause” stating its purpose. However, the founders of the Corporation were free to decide the Corporation’s purposes and limitations. The debate in the House of Commons records Gladstone stating:Joint Stock Companies at present could not be formed with any privilege such as that of suing and being sued, except, by coming to Her Majesty in Council, or by applying to Parliamentº Under this Bill, there would be a power for the first time, for persons to associate themselves in companies, for the purpose of commercial pursuits, without the fear of interference from any human being whatsoever.

The intention of the bill was clearly to grant the corporate person civil and human rights. The risks associated with allowing fictitious persons to hold these rights were downplayed. Hansard goes on to state: “Mr Parker agreed that great harm had been done by the abuse of the principles of Joint-Stock Companies; but… One great principle distinguishing this country from others was the non-interference of the Government with the regulations of trade.”

Initially, these new Registered Corporations did not have limited liability. If the Corporation could not pay its debts, creditors could recover their money from the shareholders. However, following 10 years of debate, in 1855 an Act was passed limiting shareholders liability to the amount they had paid for their shares (i.e. once the shares are paid for, a shareholder had no further responsibility for any debts or actions of the Corporation).

The debates include two instances illuminating the State’s view of who the public is. In 1850, a select committee reported on “Investments for the Savings of the Middle and Working Classes” . This report argued that limited liability for company shareholders was in the interests of the poor. The idea was that the poor could buy shares for their own purposes and limited liability would protect them. What was not considered was what would happen when Corporations with limited liability could not (for instance) pay wages?

When a Corporation collapses we are given the choice between shareholders bearing the cost or the employees bearing the cost. A limited liability scheme clearly chose the employees to bear the cost. A similar choice had to be made when a bank cannot repay its savers’ money. Again, limited liability favours the bank’s shareholders over its customers.

The second argument used in favour of limited liability was that by adding the word “limited” or “ltd” after the name of the Corporation, anyone dealing with the Corporation would know that they were dealing with a corporate person and not a real person. They would then know the risks they were facing and had the “choice” whether or not to deal with the Corporation. Whilst this may be true for lenders and other traders, employees and neighbours of a Corporation have little choice. Further, those who put forward these arguments failed to foresee the day when corporate persons would carry out all business activity. No one considered the idea that Corporations could spawn subsidiary Corporations to carry out the dirty work.

Rights to Challenge Corporate Behaviour

Officially, whilst a Corporation had all the rights of a person, it could perform no acts nor enter into transactions other than that which sprang naturally out its objects . Now that a Corporation could choose its own objects, the power to control Corporations passed from the Government (which used to vet the objects) to the Courts.

One of the problems with English law is that so much of it is based on the precedent of previous cases. Once a case has been decided, its decision (or judgment) is law. If a case has not been brought on any area for a long time, the weight of the precedent diminishes. Because previously the Government so carefully controlled the objects of Corporations, the Court was seldom called upon to declare Corporate acts ultra vires.

When the Courts were first called upon to rule on the legitimacy of the actions of, first, the proliferation of Railway Companies and then the Registered Companies, the power of the Courts to use the doctrine of ultra vires against these Corporations was unclear.

Between 1846 and 1875, a series of cases concerning the acts of Commercial Corporations came before the Courts. Through the course of these cases, the Judges made absolutely clear that the doctrine of ultra vires did apply to Commercial Corporations and that, ultimately, the Courts controlled corporate behaviour .

The first cases concerned the railway Corporations created by Act of Parliament. In East Anglian Railways Company v Eastern Counties Railways Co [1851] Lord Chief Justice Jervis stated:It is clear that the [Eastern Counties Railway Co] have a limited authority only, and are a corporation only, for the purpose of making and maintaining the railway sanctioned by the Act; and that their funds can only be applied for the purposes directed and provided for by the statute. Adding support to this, in Shrewsbury Railway Company v L&NW Railway Company [1853] Lord Justice Turner stated:[T]hese bodies have no existence independent of the Acts which created them, and they are created by Parliament with special and limited powers, and for limited purposes The fact of their being endued with such powers… only shows that Parliament did not think fit to entrust them with more extended powers, or to incorporate them for other purposes. Finally, leaving no doubt over the Court’s control of Statutory Corporations, in Eastern Counties Railways Company v Hawkes [1859] , Lord Chief Justice Pollock stated that:[A] Parliamentary Corporation is a corporation merely for the purposes for which it is established…; and it has no existence for any other purpose. Whatever is done beyond that purpose is ultra vires and void.

It was presumed that the new Registered Corporations created by the 1844 Act were also to be controlled by the Courts through the doctrine of ultra vires. As stated above, a Registered Corporation has, within its constitution, an “objects clause” which sets out what the Corporation was formed to do. However, by the 1844 Act, the Government had given the founders of these Corporations the power to create their own objects clause. Could the Courts, with the doctrine of ultra vires, still limit corporate behaviour?

In the first case of ultra vires of a Registered Corporation (Riche v Ashbury Railway Carriage Company [1875] Lord Selborne confirmed the application of “ultra vires” to Registered Corporations, stating:[C]ontracts for objects and purposes foreign to, or inconsistent with, [the objects clause] are ultra vires of the corporation itself.

Whilst accepting that a Corporation was a person before the law, the Courts also recognised that the corporate person was created for a specific purpose and it was within the Court’s power to restrict and control the Corporation’s actions to within that purpose.

However, there followed a series of developments that rendered the doctrine useless. First, in the case of Bournemouth Corporation v Watts [1884] it was decided that outsiders could not use the doctrine of ultra vires to challenge corporate actions. With respect to Commercial Corporations, that limited the right to use the doctrine to shareholders and directors and, in limited circumstances, creditors of the Corporation.With the Courts’ insistence on maintaining the ultra vires rules, Commercial Corporations could not bulldoze past the Courts’ power to decide what was or was not within their power. However, Corporate lawyers realised that the 1844 Act gave them the power to circumvent the Courts. New Registered Corporations gave themselves wide objects clauses, giving them power to do more and more and adding final clauses stating that: The objects specified in each paragraph of this clause shall be in no way limited or restricted by reference to or inference from the terms of any other paragraph or the name of the company.

The Courts were not prepared to allow such clauses. In Stephens v Mysore Reefs (Kangundy) Company [1902] Justice Swinfen Eady stated:It is not right to accept a construction which would virtually enable the company to carry on any business or undertaking of any kind whatsoever. Between 1902 and 1965 Corporations simply ignored this judgment. As in the days of the East India Company, they simply broke the law. Case after case was brought before the Courts where Corporations had attempted to use unlawfully wide, all encompassing objects clauses. Sometimes the Courts were brave and ruled the Corporate act ultra vires. But more and more the judges were attacked by the Corporations and by parliament for restricting the “freedom” of trade.Eventually, the Court abandoned any attempt at control of Commercial Corporations in the case of Bell Houses Limited v City Wall Properties Limited [1966]. The Court of Appeal approved an objects clause giving the Corporation power to:Carry on any other trade or business whatsoever which can, in the opinion of the board of directors, be advantageously carried on by the company in connection with or as ancillary to any of the above businesses or the general business of the company… The effect of the so-called “Bell Houses clause” and the Court of Appeal’s decision was to transfer the right to decide the limits of a Corporation’s powers from the Courts to the Board of Directors of each Corporation.

The final demise of the doctrine of ultra vires (so far as it related to the restriction on the rights of Commercial Corporations) took place in the Companies Act 1989. The Act maintained the requirement for Corporations to include a statement of their objects in the constitution. But, under section 3A, allowed the Corporation to (a) state simply that it was a “general commercial company” and (b) that the Corporation has “power to do all such things as are incidental or conducive to the carrying on of any trade or business by it”.

Finally, section 35(1) of the same Act altered the law so that “the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s [objects clause]”.

Conclusion

And so the corporate persons were liberated from the last of the legal restraints on their rights, free of all restrictions. In theory, a Corporation can still be brought to book for its breaches of duty to the public as neighbours, just as we are to each other. However, with subsidiary Corporations holding all the duty and responsibility for corporate behaviour, this control is somewhat illusionary.

Over the course of 400 years, the State, which initially was very wary of allowing Corporations to have profitable motives, has relinquished every one of the mechanisms it had in place to allow the public interest to overrule corporate interest. When disempowering the public, the only debate concerned Corporations’ right to be free. This was largely presumed by those making the changes to be in the public’s interest.Daniel BennettMarch 99

The post What are corporations? appeared first on Corporate Watch.