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Behind the veil – companies vs the State

Microsoft has been battling the USA over access to data for some time now. And the other big internet companies are backing it too. The USA wants to be able to access data held by Microsoft overseas. Microsoft claims that it does not have to hand it over on request – and that consumer and customer privacy concerns mean it would be a bad idea anyway.

The case has been going though the courts for some time. But it raises some profound questions about the power of companies and the power of the state in the internet age. At the moment most of the law applicable to companies is national law and most national law applies to ‘persons’ subject to the relevant nation state (although sometimes the jurisdiction of the courts is extended to crimes committed overseas). And companies are considered persons before the law.

Now while multinational companies certainly present as a monolithic presence, in fact in order to operate in a different country, it is necessary to set up a separate company registered in that country and subject to its laws. For commercial purposes this doesn’t matter much, since the country where the group is headquartered will own the overseas company and is therefore able to control it.

Companies like to play this both ways. As far as profits are concerned, they may be extracted by HQ as desired, but where a crime or environmental or human rights harm has been perpetrated, the overseas company is assigned responsibility. In this they are helped by the doctrine of the ‘corporate veil’ by which shareholders (including organisational shareholder) are not liable for the acts of their company.

So while we may now be seeing corporate acts through a glass darkly, it is possible that the Microsoft case may lift the obscuring veil. Of course, that would still leave the arguments about privacy. But those should be tackled on the basis of privacy issues, not of general corporate responsibility.

 

 

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How well do you know your government?

The role of the public sector is changing.  Activities that were once deemed to be a natural part of the function of the state, are now being carried out by the private sector.  Whether in health, education, transport or security, large parts of the job of the delivery of services paid for by the state are being delivered by private companies.

This matters from a transparency perspective because when an activity is conducted by the public sector, it is subject to freedom of information provisions and it is at least possible to find out what is going on.  But commercial confidentiality trumps transparency for both the private company and also from its state counterparty.  In the UK even direct requests by Members of Parliament for the costs of government contracts, for example, are typically refused on the grounds of commercial confidentiality.

How much does this matter? Take Serco, which employs more than 100,000 people worldwide. According to its website, they:

  • have a forward order book that stands at £19.1bn
  • operate traffic management systems covering more than 17,500kms of roads worldwide
  • manage 192,000 square miles of airspace in five countries
  • employ 5000 scientists
  • manage education authorities on behalf of local governments
  • provide defence support services worldwide
  • transport more than 275,000 passengers everyday on our driverless trains on London’s Docklands Light Railway.
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Moralising at companies: what's the point?

The government and politicians have been lecturing companies on how to behave a lot recently – there’s tax, training and ISPs for a start. But does it work?

The issue of taxes not being paid has received the most attention. That led to Starbucks volunteering an extra £20m over two years. But that may be it. So pointing out that a company could give more money to the state, or that it could choose to train more local people or could limit access to nasty pornography sites will probably have limited success. Does that make it pointless?

The natural response to such efforts at moralising is that it is indeed a waste of time: the law has to change. On this view, the law and the business case are the only things companies recognise. Yet capitalism also has a moral foundation, as Adam Smith recognised. Companies don’t always do anything they can get away with.

Maybe in the long term moralising can help to change the climate of opinion within which companies operate, creating reputational hazards if nothing else. But it is only in the long term. For tax, training and ISPs it would probably be far more effective to regulate for the solution – but that is more work for the government. And interestingly that work would mainly be in persuading other parties that changing their behaviour would be the right thing to do.

Maybe there’s no escape from moralising after all.

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It's not a very taxing world

Cameron’s initiative to open up tax havens is a good start – despite the fact that the recent agreement is only one for the UK dependencies to develop an action plan to look at transparency, rather than actually to take any action. But there will still be a long way to go after the UK dependencies have opened their doors to scrutiny.

Firstly, there are all the other tax havens in the world that are not under British control. These need to take similar action.

Secondly, transparency is needed not only for the many trusts that are held in tax havens, but also for those held everywhere else. These legal structures are just as important as companies in channeling funds away from tax authorities.

Thirdly, companies should report on the revenues of their various subsidiaries throughout the world. This would show up exactly how Starbucks, Amazon and other multinationals are dealing with their taxes.

And then, if all these things were done, there would still be the network of international treaties that permits tax dodging in the first place. We need to remember that however much we may dislike how companies operate in order to lose tax liabilities, the great majority of it is entirely legal and the structures were put there largely by democratic governments – such as Cameron’s.

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Just you, me and the NSA

Privacy is so last millenium. Security is the thing. We have bought our security with our privacy. The trouble is that we don’t know quite what we’ve done, since the providers of security now have the privacy, while we don’t. Oops.

So we are completely in the dark in the matter of what the NSA and GCHQ (and no doubt others too) have done with our online lives.  And just to make it that bit more difficult, everyone is denying everything – governments and companies alike. Only Edward Snowden stands out against the crowd, saying that the NSA has gone too far. And he has disappeared.

William Hague has said that if only we knew what the security services were doing we would be ‘enormously reassured’. Well if there really were some transparency here we might indeed begin to be reassured. But his remarks alone cannot reassure us,  unless of course we all trust him…

But we should have known – after all we are repeatedly told – that there is no such thing as privacy in the modern world, as Judy Kuszewski’s blog points out. Yet at least we know what the private sector does with our data, sort of.

In the end all we really know is that whenever a few of us are gathered together, it is just you, me and the NSA.

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Enclosing the sea

Large fishing companies are trying to privatise one of the few remaining wildernesses: the contents of the sea. The UK Association of Fish Producers (UKAFPO) is a secretive organisation with no discernible website. It is likely its ultimate sponsors are large, wealthy companies that already monopolise the majority of the British catch.

UKAFPO is suing the government because it has decided that UKAFPO members should not retain the right to its unused quota for fish and this should be allocated to smaller fishermen. Smaller fishing boats make stronger (and prettier) communities and they often fish more sustainably than larger, industrial fishing boats. UKAFPO’s argument appears to be that they have invested as though they owned the full quota, so they ought to keep it. If that’s the case, it is a very poor argument indeed.

But even more is at stake: why should anyone own the wilderness? The nearest we can get to that these days is to leave the ‘ownership’ in the hands of the state.

 

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The UK is not on the Pacific rim – but it could soon be…

The USA and countries on the Pacific rim are negotiating a new trade agreement under conditions of great secrecy. The Trans-Pacific Partnership (TPP) seems to favour trade interests above those of national governments. There are numerous problems with the intent of the TPP from giving up democratic rights to a non-democratic body to lowering sustainability standards. It will, in effect, be like those state-investor agreements under which governments agree to compensate companies if improved environmental or social regulation hurts their profits – but on a larger scale.

And while the public is excluded from the negotiations, companies are probably at the table. According to the Guardian “The top executives at General Electric, Goldman Sachs, and Pfizer probably all have drafts of the relevant sections of the TPP. However, the members of the relevant [US] congressional committees have not yet been told what is being negotiated.”

But what has the fate of Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the USA got to do with the UK?  (Apart from the injustice.) Well it seems that the TPP is intended to be open to any country to sign up to, including the UK.

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When win-win turns into win-lose

Bilateral Investment Treaties are complex, technical, boring – and dangerous. They turn the win-win of CSR into ‘heads I win, tails you lose’.

These treaties specify the conditions under which a company will invest in a country. They’re typically used by large companies making major infrastructural investments in relatively unstable countries. From the companies’ point of view, their intention is to provide certainty around their investment. For example if a developing country improves its health and safety regulations, the company would be entitled to compensation for its increased costs. so it’s a way for a company to off-load risk. From the countries’ point of view, they have no choice. The investment, even with such conditions, is an offer they can’t refuse.

According to UNCTAD, there have been hundreds of such cases. When companies sue countries, money is sucked out of the country. It also acts as a break on the improvement of social and environmental conditions.

According to an IPS report, the companies involved include Chevron and Philip Morris – amongst many, many others.

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Should Rio+20 focus on accountability?

The Stakeholder Forum has called for accountability to be central to Rio+20. We definitely need a Framework Convention on Accountability. That’s the easy part.

And I think it could draw from the consensus, established by ISO 26000, on the crucial issues that any responsible organisation should face – the core subjects and the underlying issues.

But Rio will be an inter-governmental affair, and as Halina Ward has pointed out, ISO does not have that kind of global legitimacy.

Yet the establishment of truly global consensus must be achieved through a process of dialogue. ISO 26000 should be a voice in that process.

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Carry On Guzzling

The Lancet, the academic community, the government and the World Health Organisation all agree that obesity is a serious threat. Interestingly, so does the food industry.

So, as a nation, should we:

a) just take individual responsibility and eat less? (Requires a strong and persistent public education campaign. People may also need a little help from the authorities: Japan has legal waistline standards.)

b) change the formulation of processed foods, so that we can eat as much as we like without getting fat? Or change the labelling of products, so we know how much food we are about to eat? (This is the voluntary approach favoured by industry. It shows little sign of reversing obesity trends.)

c) increase the price of food so that we buy and eat less of it? (This is likely to happen in Hungary. The UK government has come out against it.)

The correct answer is probably: all of the above. If we were serious about it, we would undoubtedly pursue action on all fronts. What’s more, it is likely to save everyone money – except perhaps for those food companies that refused to re-formulate their products.

So why has Public Health Minister Anne Milton ruled out any action by government? She seems content with new labelling practices by industry when it’s waistlines, not tag lines that matter.

Could this have anything to do with connections between government and industry?