WITHIN THE PAST MONTH at least two very learned calls have been made for actions directed in the main to discovering what went wrong in relation to two regional corporate collapses and we support these calls, not least because the continuing recession and certain developments in the world of business, both regionally and internationally, have exposed to public scrutiny the deep and intersectional relationship between business and politics.
This makes necessary another look at this relationship and how it may be better regulated in our neck of the woods to prevent the unintended results of risks inherent in corporate adventures.
The relationship may also be described as symbiotic, because the political system defines the environment in which the businesses can operate. Businesses produce a large share of the taxes which governments collect and use for the management of the country, including the social services which cater to all but particularly to the disadvantaged in the form of the social services “safety net”.
The corporate sector should not therefore be regarded as a big bad wolf, but as an important and necessary component in the overall system of national governance, a circumstance which is demonstrated when, but not only when, recessions strike, for in addition to the payment of taxes to the national treasury, the welfare and lifestyles and expectations of thousands of citizens are wrapped up in the jobs provided directly through such companies.
For example, the collapse of Lehman Brothers and the problems suffered by the Northern Bank in Britain and by the Stanford group and CL Financial and CLICO have meant the shedding and permanent loss of jobs of thousands of workers and the loss of revenue to the respective governments.
At the same time the symbiotic relationship has meant that regional governments have had to initiate rescue packages of one sort or other to stabilise the operations of those entities at risk in order to avoid or minimise the social dislocation likely to follow full-scale collapse of sectors of the economy.
The stark reality is that very often the buck stops at the taxpayer’s desk, and large slices of the public purse are used to tide these entities over the financial gullies which they must cross.
The further public interest is thereby directly involved yet again, but on this occasion, rather than receiving revenue, the Government is providing the money which some may say would be better used to provide for the poor and socially vulnerable!
In the United States greater scrutiny and anti-risk-specific legislation is making its way through Congress, and the Financial Services Regulator in Britain has dealt harshly with two former executives of the Northern Bank, fining one some £500 000 and the other just over £100 000, and banning them from significant involvement in regulated companies.
But that is not our immediate concern. It ought to be clear even now that simple administrative and legal changes could have alerted regional regulators to the structural deficiencies emerging in the corporate structures, even in the absence of more detailed regulations.
In our opinion, changes to the regulatory regime directed mainly at the problems recently thrown up must not and cannot await the outcome of any enquiries. Immediate new regulations directed at the interface and interplay between insurance companies and other companies must be implemented at once.
There are characteristic differences between ordinary companies and financial service companies, and cross contamination between them often leads to the financial contagion which has afflicted both the CL Financial and Stanford groups of companies, as well as some of the major banking institutions in the United States. It is this obvious loophole which we say requires immediate plugging if future financial sector crises of this nature are to be avoided.
