Category Archives: Reward for failure
George Monbiot recently pointed out that the Commons report on the Carillion fiasco is one of the most damning assessments of corporate behaviour parliament has ever published. It trounces the company’s executives and board and laments the weakness of the regulators.
But, as Prem Sikka said in his April article, it scarcely touches the structural causes that make gluttony a perennial feature of corporate life.
Both agree that the problem begins with an issue the report does not once mention: the extreme nature of limited liability. Sikka points out that this system, under which executives are only financially accountable for the value of their investment, has also benefited frauds and led to the self-enrichment of executives at the expense of workers, consumers, creditors, pensioners and citizens.
Monbiot adds that the current model of limited liability allowed the directors and executives of Carillion to rack up a pension deficit of £2.6 billion, leaving the 27,000 members of its schemes to be rescued by the state fund (which is financed by a levy on your pension – if you have one). The owners of the company were permitted to walk away from the £2 billion owed to its suppliers and subcontractors. (Left: the former Carillion chief executive Keith Cochrane in Westminster after appearing before the Commons work and pensions select committee)
Monbiot continues: “There is no way that fossil fuel companies could pay for the climate breakdown they cause. There is no way that car companies could meet the health costs of air pollution. Their business models rely on dumping their costs on other people. Were they not protected by the extreme form of limited liability that prevails today, they would be obliged to switch to clean technologies”.
So what is to be done?
Prem Sikka (right) proposes that the bearers of unlimited risks and liabilities should be given rights to control the day-to-day governance and direction of companies.
He advocates including employees and citizen/consumers on company boards – because both ultimately have to bear the financial, health, social and psychological costs associated with environmental damage, pollution, poor products, industrial accidents, loss of jobs, pensions and savings. Through seats on company boards, they could secure a fairer distribution of income, challenge discrimination, curb asset-stripping and influence investment, training and innovation.
Across the 28 European Union countries (plus Norway), most have a statutory requirement for employee representation on company boards – unlike the UK, Belgium, Bulgaria, Cyprus, Estonia, Italy, Latvia, Malta and Romania.
George Monbiot proposes a radical reassessment of limited liability.
He points out that a recent paper by the US law professor Michael Simkovic proposes that companies should pay a fee for this indemnity, calibrated to the level of risk they impose on society. He adds, significantly, that as numerous leaks show, companies tend to be far more aware of the risks they inflict than either governments or the rest of society. Various estimates put the cost that businesses dump on society at somewhere between 4% and 20% of GDP
His own ‘tentative’ and ingenious proposal is that any manager earning more than a certain amount – say £200,000 – would have half their total remuneration placed in an escrow account, which is controlled not by the company but by an external agency. The deferred half of their income would not become payable until the agency judged that the company had met the targets it set on pension provision, workers’ pay, the treatment of suppliers and contractors and wider social and environmental performance. This judgement should draw on mandatory social and environmental reporting, assessed by independent auditors.
If they miss their targets, the executives would lose part or all of the deferred sum. In other words, they would pay for any disasters they impose on others. To ensure it isn’t captured by corporate interests, the agency would be funded by the income it confiscates.
Monbiot then says “I know that, at best, they address only part of the problem” and asks, “Are these the right solutions?
- support them,
- oppose them
- or suggest better ideas.
He ends: “Should corporations in their current form exist at all? Is capitalism compatible with life on earth?”
Natural England – sponsored by the Department for Environment, Food and Rural Affairs – is responsible for ensuring that England’s natural environment, including its land, freshwater and marine environments, geology and soils, are protected and improved.
The Farmers Guardian reported that in 2016 Natural England’s payment record was rated even worse than that of the Rural Payments Agency (RPA) as it also failed to deliver the required Countryside Stewardship payments for work already done.
Its performance did not improve in 2016; farmers were kept waiting for their first Countryside Stewardship payment. Though Natural England had pledged to make advance payments to 2016 mid-tier and higher-tier scheme holders between November 2016 and January 2017, with final payments due between January and June 2017, the NFU said exasperated members were calling the union demanding to know why their payments had not arrived. Farmers Weekly understood that ongoing delays in processing payments were because of problems with IT systems and processes at Defra.
A spokeswoman for Natural England declined to comment on the number of 2016 scheme payments already made.
FW added that farmers are yet to receive the first tranche of their 2017 payments for work done. Parliament’s Public Accounts Committee was scathing in its criticism of the RPA’s failure to distribute basic farm subsidies whilst requiring prompt applications from farmers (below left).
The extent of the Rural Payments Agency’s failure to pay farmers in England on time and in full is now clear. The RPA paid only 38% of farmers under the Basic Payment Scheme on 1 December 2015—first day of the payment window—compared with over 90% in previous years.
By the end of January this had risen to 76%, but at the end of March 2016 there were still 14,300 farmers (16%) who had not received any payment.
Government agencies should honour their own injunction: don’t leave it too late.
Over 10,000 farmers who had received a payment had not been paid in full. Two thirds of the additional payments made to these farmers were in excess of €1,000 and were first paid in September 2016, over 9 months after the first payment should have been received.
Farmers Weekly reported in February this year that the RPA boss was ‘blasted’ over farm payment delays and mapping.
At a NFU council meeting on 30th January at Stoneleigh Park, Warwickshire, farmers took RPA’s chief executive Paul Caldwell to task over BPS payment delays. More than one in 10 farmers are still waiting, according to an NFU survey (see “Survey uncovers extent of delays” right) – although the RPA’s own statistics suggests that figure is nearer to one in five. NFU vice-president Guy Smith said: “When you look at current payment performance and the levels of outstanding issues from previous years you could describe the RPA as ‘just about managing’.
In March 2017, having received what Miles King described as a ‘verbal beating’ (Countryside Stewardship in front of the EFRA committee) Guy Thompson, Chief Operating Officer, left Natural England and now works for Wessex Water.
Natural England announced in the autumn that it would increase first tranche payments, traditionally paid in the autumn, from 50% to 75%, with the remaining 25% following later, reflecting payment reductions or penalties.
Missing payments have reduced cashflow, leading some to take out bank loans
According to farm leaders, many claimants are still waiting for that first payment, with some now being forced to take out bank loans because of their resulting cashflow difficulties. Max Sealy, NFU county delegate for Wiltshire and a consultant with the Farm Consultancy Group, said some farms were waiting for substantial sums of money for work which they had already completed.
“What we need is clarity on the situation and better communication,” he said. But a Natural England spokesperson declined to clarify how many payments were still outstanding and when farmers could expect to see them.
Farmers who have signed up to Countryside Stewardship, or still have an old Higher-Level or Entry-Level Stewardship agreement, have yet to receive the first tranche of their 2017 payments. Farmers Weekly reports that farmers want to know when they can expect to receive their agri-environment scheme payments, with ongoing delays leading to budgeting problems and growing resentment about the way the schemes are being managed.
The Farmers Guardian then reported that Defra is to transfer delivery of the Countryside (agri-environment) Stewardship scheme from Natural England to the Rural Payments Agency (RPA) – more confusion?
NFU Deputy President Guy Smith (right) said:
“The Countryside Stewardship scheme has been plagued by poor delivery from its launch in 2015 and the NFU has been raising these concerns from day one. It seems almost every day we have complaints from members about the muddled application process, wrong maps, moving goalposts, late start dates and delayed payments. All this has undermined farmer confidence in the schemes leading to very poor uptake. Plans to improve delivery have to be welcomed but until we see improved delivery we will withhold judgement.
“I know many farmers will not be reassured that delivery is moving from NE to the RPA, which is notorious among farmers as the organisation which comprehensively screwed up the payment of the as then new Basic Payment Scheme back in 2014. A highly complex new IT system was commissioned to enable farm payments to be moved online. 7 years later the system is still not working properly.
Conservationist Miles King went further, calling for the abolition of the Rural Payments Agency before the introduction of the government’s England Agriculture Policy which is expected to be published this spring: “We need a publicly-funded independent champion for nature (as Natural England was intended to be when it was set up) and a new body which will deliver the public goods for public money”.
Broken Britain 8: EU nationals experience the maladministration which has affected the country’s poorest for decades
EU nationals’ deportation threat was an ‘unfortunate error’, according to Theresa May
The Home Office mistakenly sent up to 100 letters to EU citizens telling them to leave UK or face removal
One of these, academic Eva Johanna Holmberg has lived in the UK with her British husband for most of the last decade, but the letter from the Home Office said that ‘A decision has been taken to remove you from the UK.’ It added that if she did not leave the country of her own accord the department would give “directions for [her] removal” as “a person liable to be detained under the Immigration Act”.
Her story was picked up on social media and the Home Office then said the letter had been sent by mistake. Several people have been told wrongly they should leave the country after trying to apply for permanent residency but this is the first time the Home Office has issued a letter telling people to leave.
Though the department called to apologise, the person who telephoned did not agree that the government would cover her legal costs of about £3,800.
The Financial Times reports that more than 120 MPs have challenged the rollout of Britain’s flagship “Universal Credit” benefits system, saying that delays are leaving poor households exposed.
Universal credit payments are withheld for the first week and then paid monthly in arrears. In practice, almost a quarter of claimants are waiting even longer — for up to 12-13 weeks. A DWP spokesperson said “Around 80% of payments are made on time and where they are not it is usually because a claimant commitment has not been signed or there is a verification issue over information”.
Citizens’ Advice has helped more than 30,000 people facing problems with the new system, and the Trussell Trust ((food banks) has seen a sharp rise in referrals for emergency food in areas where universal credit has been introduced.
But private enterprise flourishes: MP Ruth George said there was evidence that high-cost payday lenders were targeting areas where the universal credit system has just been introduced – and household debt is already 140% of GDP.
Seven years ago, the Stirrer’s correspondent (The Spook) predicted that one day the powers that be will realise that services should be designed and managed by the ‘undoubted experts’ that exist within the council.
S/he explained that they would be more practical and less expensive than those designed by “by cavalier consultants and back room HR boffins who have no conception of delivering a service and are only concerned that “procedures” are followed and “statistics” are recorded, irrespective of how impractical and resource wasting this might be.
Yesterday the Financial Times predicted that Learndirect, a company owned by the private equity arm of Lloyds Bank, is at risk of collapse, following a report by Ofsted. This prompted a data search which revealed 2013-4 as vintage years for complaints about the performance and cost of outsourcing companies.
Last year a survey of 36 strategic public-private partnerships signed between 2000 and 2007 found that 13 of the contracts – ranging from 7 to 15 years and covering IT, back-office functions, property management and highways – have gone back in-house at the end of contract or as a result of early terminations. In more than a third of cases, councils found that delivering services in-house could save more than outsourcing to commercial companies in long-term, multi-service partnerships. A return to designing, staffing and over-seeing services in-house can improve performance, reduce costs and provide stable employment for local people at all levels, with money circulating in the area, instead of going to distant shareholders.
The New Statesman noted that many companies featured on their list of nine spectacular’ council outsourcing failures were said to be looking “excitedly” at the NHS – hoping for “heaps of public money, ditching service the second the contract is framed and delivering huge returns to their shareholders”. Its 2014 article opened:
“One of the many concepts that free marketeers refuse to abandon in the face of all evidence is the idea that the private sector is better at providing public services than the public sector. Private companies have been cashing in on this fable for years at council and government level. As we file this report, another glorious outsourcing triumph is breaking: the Ministry of Justice has asked police to investigate alleged fraudulent behaviour by Serco staff in its Prisoner Escort and Custodial Services contract”. An online search will reveal that this is one of many problems reported in different countries.
Punitive contract ‘get out’ clauses – real or imagined
The article also listed the amount councils have had to spend to get out of private sector contracts and/or to deal with contract disputes and cost overruns. Note Javelin Park – the Gloucester incinerator contract revelation.
Despite these concerns, four years ago Swindon council brought basic ‘commercial’ services such as waste collection, recycling, highways maintenance and grass cutting, back in-house in order to save an estimated £1.8m. Last year, because of performance problems, financial pressures and NHS policy shifts, Swindon also decided not to renew contract with social work provider SEQOL.
Birmingham City Council recently ended the Service Birmingham Joint Venture with Capita which provided the Council’s information technology, ran the council tax and business rates administration service. The process continues with its move to bring waste and recycling collection in-house.
With reference to Serco, G4S and others – Simon Chesterton goes deeper, beyond issues of cost and efficiency:
He asks (left) whether there should be any limits on government capacity to outsource traditionally “public” functions:
“Can and should a government put out to private tender the fulfilment of military, intelligence, and prison services?
Can and should it transfer control of utilities essential to life, such as the supply of water?”
This site has recorded many instances of rewards for ethical commercial or financial failures but the editor stopped searching at 29. A typical example filed two years ago starred Lin Homer and John Manzoni. Now political figures are coming to the fore. Number 30 was health minister Jeremy Hunt.
Four years after the first report we read of two further rewards for former MP Jacqui Smith, who lost her Redditch seat after incorrectly claiming expenses and was later appointed chair of University Hospitals Birmingham NHS Trust.
Edgbaston MP Gisela Stuart was quoted in the Birmingham Post at the time as saying “It looks to me as if we are rewarding failure and I have raised this with the Health Secretary”.
Earlier in July this year, Ms Smith was appointed by the Department for Education to chair the board of the new Sandwell Children’s Social Care Trust and – regrettably – today it is reported that she has now been elected Chairman of The Lunar Society.
What conclusions can the public draw?