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King's Law Journal
ISSN: 0961-5768 (Print) 1757-8442 (Online) Journal homepage: http://www.tandfonline.com/loi/rklj20
From Lonrho to BHS: The Changing Character
of Corporate Governance in Contemporary
Capitalism
Paddy Ireland
To cite this article: Paddy Ireland (2018): From Lonrho to BHS: The Changing Character
of Corporate Governance in Contemporary Capitalism, King's Law Journal, DOI:
10.1080/09615768.2018.1475846
To link to this article: https://doi.org/10.1080/09615768.2018.1475846
Published online: 20 Jun 2018.
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From Lonrho to BHS: The Changing Character of
Corporate Governance in Contemporary Capitalism
Paddy Ireland*
INTRODUCTION: FROM FACET TO NORM
Edward Heath was not noted for his memorable turns of phrase. Indeed, one of the few
phrases for which he is remembered—‘the unpleasant and unacceptable face of capital-
ism’
1
—appears to have been unintended, the mistaken product of a mixture of vanity
and myopia. In 1973, in a Commons debate on the talks taking place between the
TUC and the CBI about inflation, Heath was asked to condemn the practices of
Lonrho.
2
Although he was short-sighted, Heath was loath to wear glasses and he
couldn’t quite make out the words on the script provided by Number 10: ‘This is an
unpleasant and unacceptable facet of capitalism’.
3
By omitting the ‘t’, he unwittingly
coined a phrase which continues to be wheeled out when particularly egregious corpor-
ate scandals come to light. It got one of its most recent airings in 2016 in the report of the
House of Commons Joint Work and Pensions and Business, Innovations and Skills
Committees into BHS. The way in which ‘Sir Philip Green, Dominic Chappell and
their respective directors, advisers and hangers-on’had got ‘rich or richer’at the
expense of ‘ordinary employees and pensioners’, the report concluded, was ‘the unac-
ceptable face of capitalism’.
4
It was used again in August 2017 by the Prime Minister,
Theresa May, to describe the practices of companies who had ‘deliberately broken
rules designed to protect their workers’and ‘award[ed] pay rises to bosses that far out-
strip[ped] the company’s performance’.
5
It’s worth briefly reminding ourselves of the events that prompted Heath’s original
condemnation. Lonrho had begun life in 1909 as a mining company, before gradually
*University of Bristol Law School. Email: paddy.ireland@bristol.ac.uk
1HC Deb 15 May 1973, vol 856, col 1243.
2Originally the London and Rhodesia Mining and Land Company Ltd.
3See John Campbell, Edward Heath: A Biography (Jonathan Cape 1993) 528; M McManus, Edward Heath: A
Singular Life (Elliott & Thompson 2016) 132.
4Work and Pensions and Business, Innovation and Skills Committees, BHS (2016–17, HC 54) 55, para 168.
5Theresa May, ‘For Britain’s sake, it’s time to tackle the unacceptable face of capitalism’The Mail on
Sunday (27 August 2017) <www.dailymail.co.uk/news/article-4826658/PM-Time-tackle-unacceptable-
face-capitalism.html> accessed 29 May 2018.
King’s Law Journal, 2018
https://doi.org/10.1080/09615768.2018.1475846
© 2018 School of Law, King’s College London
branching out into ranching, agriculture and asbestos. The company only really began to
take off, however, when Roland W (‘Tiny’) Rowland joined the board in 1961. Ruthlessly
and skilfully exploiting the opportunities thrown up by de-colonisation, Rowland
quickly turned the company into an international conglomerate based in Africa.
Schmoozing, bribery and corruption were central parts of his modus operandi. For
the most part, the British government were happy to turn a blind eye as they sought
to find new and covert forms of control to replace the direct forms of the colonial
era.
6
In the early 1970s, however, with Lonrho in need of finance, a new Chairman
was appointed (Duncan Sandys, a former Conservative cabinet minister), together
with a number of new board members, including Sir Basil Smallpeice, ‘the personifica-
tion of City orthodoxy’.
7
Smallpeice and others quickly became concerned about finan-
cial irregularities, including illicit payments to Sandys, and Rowland’s style of
management, which involved circumventing, ignoring and deceiving the board. A
boardroom dispute broke out in which eight of the directors, led by Smallpeice
(dubbed by City and media supporters as ‘the straight eight’), sought to remove
Rowland. He resisted, applied for an injunction, and in the ensuing court case the com-
pany’s dirty linen was aired in public. It became clear that apparently respectable direc-
tors were avoiding taxes, being paid large sums of money for little (if any) work, and
living rent-free in expensive houses. For the Heath government it couldn’t have come
at a worse time, for, confronted with growing labour unrest, it was trying to clamp
down on trade unions and strikes.
8
To make matters worse, Rowland lost the case
(Heath’s condemnation came the day after the decision), but won the war: the court
decided the composition of the board should be left to the shareholders and a few
days later at a rowdy extraordinary general meeting, Rowland, using his 20 per cent
shareholding in the company and with the support of the great majority of the other
shareholders, was able not only to retain his position on the board but to vote off the
eight opposition directors. The shareholders, it seems, didn’t care about his methods
as long as the dividends kept rolling in.
Post-BHS, it is tempting to conclude that nothing much has changed and that a
certain amount of morally reprehensible behaviour is part and parcel—a‘facet’—of
capitalism, the price we have to pay for the benefits it brings. That certainly seems
to have been Heath’s view. Lonrho, he argued, was an exception, not the rule:
‘one should not suggest that the whole of British industry consists of practices of
this kind’.
9
In similar vein, Theresa May sought to stress that the practices she was
6They continued to turn a blind eye even when it became apparent that Lonrho was engaged in busting the
sanctions which were imposed on Rhodesia following its unilateral declaration of independence (UDI) in
1965. See C Uche, ‘Lonrho in Africa: The Unacceptable Face of Capitalism or the Ugly Face of Neo-Colo-
nialism?’(2015) 16 Enterprise & Society 354.
7S Cronje, M Ling and G Cronje, Lonrho: Portrait of a Multinational (Pelican 1976) 104.
8See Cronje and others (n 7) ch 7, 134–45. Most famously through the Industrial Relations Act 1971 (c 72).
9See Hansard debate (n 1).
2From Lonrho to BHS
condemning involved only ‘a small minority of executives’.
10
While there might have
been some justification for claims of this sort in 1973, however, things have since
changed and changed quite fundamentally. It is not simply that the volume of obviously
scandalous behaviour has increased—though it has—but that the capitalism that has
emerged in recent decades is in its normal operations morally reprehensible and produc-
tively dysfunctional, as are the forms of corporate governance that are an integral part of
it. In short, the ‘unacceptable’is part and parcel of contemporary capitalism. It is insti-
tutionally and culturally embedded. As a recent blogger, comparing Lonrho to the VW
emissions scandal, observed: ‘What high standards we must have had back then, four
decades ago, if a relatively minor dispute over governance could make such headlines’.
11
The Lonrho scandal didn’t, after all, involve a company collapse, massive job losses or
the destruction of thousands of employee pensions.
12
This paper explores the ways in which corporate governance and capitalism have
changed in the 40 or so years separating Lonrho and BHS and examines how what
could be described with some plausibility as a ‘facet’of capitalism in 1973 has
become closer to the norm in 2017. It begins by sketching out the logic of capitalism
and the ethics that must be expected to accompany it, before moving on to explore
the different ways this logic has played out in empirical reality since the end of the
Second World War, particularly in the corporate context. The paper argues that the
post-war heyday of social democracy saw the logic of capitalism tempered and
restrained, but that recent decades have seen the more ‘acceptable’form of capitalism
that resulted from this replaced by a much-less-acceptable, highly financialised, neolib-
eral form of capitalism in which the logic of capitalism operates in an increasingly pure
and unadulterated manner.
13
In this context, the paper argues that it is not, as some have
suggested, today’s neoliberal capitalism that is abnormal and exceptional, but, rather, the
socially democratic capitalism of the post-war period. As time has passed, it has become
clear that the latter was the product of a very specific conjuncture. What we are now
experiencing is corporate capitalism operating according to its normal, financialised
and inherently unethical logic. From this perspective, ‘regulation’in the traditional
sense—in which certain arrangements and processes are left untouched and treated as
10 City AM (27 August 2017) <www.cityam.com/270909/theresa-may-launches-new-rules-executive-pay-
and-workers> accessed 28 May 2018.
11 <www.marketingsociety.com/the-library/unacceptable-face-capitalism#W657HxHfkTEacZik.97>
accessed 28 May 2018.
12 The buck did not stop at Green’s door. For example, Goldman Sachs was heavily involved in the sale of
BHS to the consortium led by the former bankrupt, Dominic Chappell <www.ft.com/content/0ff4c558-
51ae-11e6-befd-2fc0c26b3c60#axzz4FLhjs3Vd> accessed 28 May 2018. Since this article was written, the
multinational construction company Carillion has collapsed in a manner bearing many similar features to
BHS.
13 Following Gerald Epstein, I use the terms ‘financialised’and ‘financialisation’broadly to refer to ‘the
increasing role of financial motives, financial markets, financial actors and financial institutions in the
operations of the domestic and international economies’: G Epstein, ‘Introduction’in G Epstein (ed),
Financialization and the World Economy (Edward Elgar 2005) 3.
King’s Law Journal 3
though they are unalterable givens with a pre-regulatory existence
14
—is unlikely to deal
with the problems we are facing. An ‘acceptable’capitalism, the paper concludes, would
be much less of a capitalism, or, indeed, something substantially other than capitalism.
THE LOGIC OF CAPITALISM
One only has to reflect on capitalism’s self-description—its own account of how it oper-
ates and the nature of the people operating within it—to see that a tendency towards
unethical behaviour is embedded in its institutional logic. Capitalism purports to be a
system based on competitive free markets in which consensual contractual exchanges
take place between private agents seeking personal material gain. These market
exchanges are secured and guaranteed by a neutral state which protects private property
rights and freedom of contract. There is no ceiling on the size of the material gains that
these market actors might secure as long as they play by the rules; nor should there be.
15
The search for unlimited wealth is ‘rational, …natural and normal, and therefore to be
expected’because it is consonant with human nature.
16
Unlike many of its rivals, capit-
alism is free from moral self-deception: it accords with and reflects human nature, and
recognises the egoism of homo economicus and her insatiable appetite to consume.
17
Market competition and this absence of limits also underpin capitalism’s dynamism
and ability to deliver material wealth. Moreover, as any large accumulations of wealth
arising out of market processes are the products of voluntary and consensual exchanges,
they are prima facie legitimate. They are further legitimised by the fact that the self-inter-
ested pursuit of unlimited material gain in competitive markets operates in the wider
public interest by ensuring the efficient allocation of resources and the maximisation
of aggregate social wealth: private vice yields public benefits.
18
In recent decades, in
the corporate context, these ideas have found expression in the idea that ‘maximising
shareholder value’benefits not only shareholders but society as a whole. From this
14 For a discussion of this, see P Ireland, ‘Property, Private Government and the Myth of Deregulation’in S
Worthington (ed), Commercial Law and Commercial Practice (Hart 2003) 85.
15 Oxfam recently reported that the world’s richest eight individuals owned as much wealth as the poorest
50% of the world’s population <www.oxfam.org/en/pressroom/pressreleases/2017-01-16/just-8-men-
own-same-wealth-half-world> accessed 28 May 2018. Others have made similar claims, though the
number varies. Even if the eight were increased a hundred or a thousand fold, the point would stand.
16 W Streeck, ‘Taking Capitalism Seriously: Towards an Institutionalist Approach to Contemporary Political
Economy’(2011) 9 Socio-Economic Review 137, 149 (his emphases). This section is indebted to Streeck’s
excellent analysis.
17 This naturalises and legitimates capital’s need for endless expansion, and for ever-rising consumption and
for the construction of new desires. It also underpins the tendency within neoclassical economics to view
even seemingly selfless acts as motivated by self-interest. From this perspective, altruism generates misal-
locations of resources.
18 This perhaps explains why Peter Mandelson was so ‘intensely relaxed’about people getting ‘filthy rich’.
‘The normalized actor under capitalism is someone who does not relent in his [or her] effort to get
richer regardless of what he has already achieved; for him “the sky is the limit”, and there is no pre-estab-
lished point where he has ‘had enough’or is institutionally expected to have enough’: Streeck (n 16) 149.
4From Lonrho to BHS
perspective, the globalisation and liberalisation of product and financial markets and the
heightened competition this has brought are to be welcomed, for the operation of these
markets has compelled managers to profit maximise and to produce as efficiently as
possible. If they don’t they simply won’t survive. Market imperatives are positive
forces, underpinning capitalism’sefficiency, productiveness, inventiveness and relentless
(endogenous) dynamism.
19
Contained within this account of human nature and the economic functioning of a
‘pure’capitalism is an account of how economic actors must be expected to behave. As
EP Thompson observed, capitalism contains ‘an economic logic and amorallogic’,
which are ‘different expressions of the same kernel of human relationship’and which
find ‘simultaneous expression …in all systems and areas of social life’, in norms and
culture, and ‘in characteristic values and modes of thought as well as in characteristic
patters of accumulation and exchange’.
20
For Thompson, these logics are derived from,
and rooted in, capitalism’s institutional arrangements, and in particular its social property
relations. By contrast, for the defenders of capitalism they are derived from, and rooted in,
human nature. Human beings are rational egoists who must be expected to strive to
improve their position at the expense of others. The emergence of market institutions
and imperatives both reflects and reinforces these natural tendencies. It follows that
although they are supposed to abide by the rules of the game, rule makers and regulators
should expect people to deal with those rules—labour standards, environmental regu-
lations, tax laws and the like—and any ethical norms associated with them in an instru-
mental manner, ‘from the perspective of how they may be applied, avoided or
circumvented for individual benefit’. As a result, Streeck says, ‘rule makers cannot
expect rule takers to interpret their rules in ways other than in studied bad faith’.
21
Indeed, not only is it perfectly ‘natural’for people to seek to bend or avoid rules and to
circumvent social obligations if this generates market and/or material advantage, compe-
tition may compel them to do so. As Oliver Williamson explains, what we must expect,
given the way capitalist competition operates, is institutionalised opportunism, devious-
ness and bad faith, what he refers to as ‘self-interest seeking guile’.
22
Guile entails
19 On the centrality of these market imperatives to the logic of capitalism, see EM Wood, The Origin of Capit-
alism (Verso 2002) ch 1.
20 EP Thompson, ‘The Long Revolution—II’(1961) 10 New Left Review 34, 38; EP Thompson, The Poverty of
Theory (Merlin 1978) 84, 121, 254. See also Thompson, ‘Folklore, Anthropology, and Social History’
(1978) 3 Indian Historical Review 247, 261–64. Thompson urged a return to a ‘full sense of a mode of pro-
duction’, rejecting the idea that the ‘economic’was somehow more ‘primary’or ‘real’than, say, the legal or
cultural: see P Ireland, ‘History, Critical Legal Studies and the Mysterious Disappearance of Capitalism’
(2002) 62 Modern Law Review 120. Thompson’s idea of a ‘full sense of a mode of production’can help
us to grasp the different aspects and uses of the term, ‘neoliberalism’, which have led some to reject it
as a useful category of analysis. Neoliberalism has been variously deployed to describe a market fundamen-
talist intellectual project, a set of economic policies, and a range of cultural changes linked to growing
commodification. From a Thompsonian perspective, they are all best viewed as different aspects of neo-
liberal capitalism as a mode of production in the ‘full sense’.
21 Streeck (n 16) 143–44.
22 O Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (Free Press 1975) 255.
King’s Law Journal 5
‘calculated efforts to mislead, distort, disguise, obfuscate, or otherwise confuse’.
23
The
inclination to avoid rules and social obligations is not, of course, confined to capital-
ism. The difference, as Streeck notes, is that under capitalism, ‘the inventive pursuit of
self-interest is in the spirit of the social order itself’;itis‘both institutionally expected
and empirically prevailing’.
24
Indeed, outdoing and eliminating your rivals is not only
legitimate but admirable. Thus, entrepreneurially and inventively twisting (or avoiding)
rules to one’s advantage is often seen—sometimes openly and publicly, sometimes
more covertly—as something to be admired (‘smart’),
25
rather than as something to
be condemned. It is part of the system’s ethos and dynamic. The operation of capital-
ism thus tends towards the prevalence of what the conservative German economist
Götz Briefs called ‘marginal ethics’(grenzmoral). These are ‘the ethics of those least
restrained in the competitive struggle by moral inhibitions, that is of those who
because of their minimal ethics have under otherwise equal conditions the best
chances of success and who on this account force competing groups, at the penalty
of elimination from competition, gradually to adapt in their trading to the respectively
lowest level of social ethics (i.e. to the “marginal ethics”)’.
26
Sometimes, particularly
when the market pressures are intense, these marginal ethics become so culturally
entrenched that people operate far more unethically than competitive survival and
success requires.
27
It may, of course, be that, ultimately, this sort of behaviour risks undermining the
very system of which it is part: to function a capitalist economy needs some degree of
mutual trust, reciprocity, solidarity and goodwill. However, ‘one [cannot] rely on capi-
talist utility maximisers [to] exercise[e] self-restraint in the name of the collective inter-
est’.
28
On the contrary, in a competitive environment, adhering to ethical norms and
taking account of the collective interest when those around you are ignoring them is
likely to prove a recipe for failure. It is not merely that the benefits of bending and cir-
cumventing rules and avoiding social obligations are often considerable, but that the
costs of failing to do so are even greater. Having moral scruples—or in the corporate
23 O Williamson, The Economic Institutions of Capitalism (Free Press 1985) 47. For a critique, see GM
Hodgson, ‘Opportunism Is Not the Only Reason Why Firms Exist: Why an Explanatory Emphasis on
Opportunism May Mislead Management Strategy’(2004) 13 Industrial and Corporate Change 401.
24 Streeck (n 16) 144: ‘Capitalist institutions cannot but stylize capitalist actors as rational-utilitarian exploi-
ters of gaps in rules. This is because of a dominant ethos that cannot condemn egoistically rational inno-
vation in rule following, if not in rule breaking, and a culture that lacks the normative means by which to
enforce and reward behaviour in good faith’.
25 In one of the 2016 Presidential debates, Donald Trump responded to Hillary Clinton’s claim that he hadn’t
paid Federal income taxes for a number of years with, ‘That makes me smart’:<http://edition.cnn.com/
2016/09/26/politics/donald-trump-federal-income-taxes-smart-debate/index.html> accessed 28 May
2018.
26 Quoted in Streeck (n 16) 145. Briefs was a conservative, Catholic, German social theorist and institutional
economist. The erosion of ethical standards is one of the themes of the documentary filmmaker Alex
Gibney’s series, Dirty Money.
27 The Panama and Paradise papers provide examples of this. Some of these people are so rich their tax
avoidance schemes seem inexplicable.
28 Streeck (n 16) 147.
6From Lonrho to BHS
context, seeking to act in a socially responsible manner and failing relentlessly to profit
maximise—might prove not merely disadvantageous but potentially self-destructive.
LES TRENTE GLORIEUSES: THE LONG POST-WAR BOOM
How has the logic of capitalism played out over time? The Lonrho incident occurred
at what, with hindsight, we can see as a pivotal moment in the history of modern
capitalism: the end of the long post-war boom. Contrary to common belief, the
depression of the 1930s was brought to an end not by government interventions
like the New Deal but by the Second World War. Indeed, shortly before war
broke out, amidst renewed recession, the Keynesian Harvard economist, Alvin
Hansen, sparked a debate about the causes of the depression by eschewing expla-
nations that focused on short-term fluctuations in the business cycle and arguing
that deeper structural forces were at work. Capitalism, he suggested, tended
towards ‘secular stagnation’and was characterised by ‘sick recoveries which die in
their infancy and depressions which feed on themselves and leave a hard and see-
mingly immovable core of unemployment’.
29
This idea was quickly forgotten,
however, when war spending and the destruction of capital provided a basis for
restored profitability. The three post-war decades saw a sustained period of growth:
the ‘long boom’, the ‘Golden Age’of Social Democracy, les trente glorieuses. During
this period, various forces acted to temper the logic of capitalism. With trade
union membership steadily rising (it peaked in the UK in the late 1970s), collective
bargaining spreading and unemployment low, labour was able to act as a powerful
‘countervailing power’to capital.
30
Finance, already weakened by the depression
and subject in places such as the US to more risk-averse regulatory structures, was
kept in check by the fixed exchange rates and strictly regulated capital flows of the
Bretton Woods system. And the state continued, as it had during the war, to play
a major role not only in coordinating and regulating the economy, but in distributing
the social product. Although this alarmed liberal free-marketeers, many now saw sig-
nificant government interventions in the economy as not only socially desirable but
necessary to save capitalism from itself by making it palatable to the economically
and politically empowered working classes. These multifarious forces, together with
sustained growth, facilitated the forging of a class compromise in which workers
(and their political representatives) broadly accepted capitalist markets and property
29 A Hansen, ‘Economic Progress and Declining Population Growth’(1939) 29 American Economic Review 1,
4. Unemployment in the US still stood at over 15% in 1940. See also A Hansen, Full Recovery or Stagnation?
(WW Norton 1938). Hansen’s argument was that there was, for various reasons, a shortage of investment
opportunities. His principal opponent in the debate was Joseph Schumpeter.
30 The term was coined by JK Galbraith, American Capitalism:The Concept of Countervailing Power
(Houghton Mifflin 1952). See also S Brooke, ‘Atlantic Crossing? American Views of Capitalism and
British Socialist Thought 1932–62’(1991) 2 Twentieth Century British History 107.
King’s Law Journal 7
forms in return for steadily rising wages and living standards, redistributive tax policies, low
levels of unemployment, and improving levels of social security, education and health. This
period saw falls in income and wealth inequality and was thought by many to be ushering in a
new more welfare-oriented, more humane and more coordinated ‘managerial’or ‘managed’
capitalism based on ‘mixed’or ‘social market’economies.
31
THE CORPORATION AND CORPORATE GOVERNANCE IN THE POST-WAR
PERIOD
Central to the idea that a new ‘good’form of capitalism had emerged were perceived
changes in the practices and cultures of the large corporations that dominated the
economy. The managers of these corporations, it was believed, had acquired much
greater discretionary power as a result of the weakening of both the internal (share-
holder) and external (market) pressures on them to profit maximise. The internal press-
ures had been eroded by the growth in, and dispersal of, corporate shareholding. This, it
was claimed, most famously by Berle and Means in The Modern Corporation and Private
Property,
32
had generated a separation of ownership and control. In many of the large
corporations that dominated the economy, ever more numerous and dispersed share-
holders could no longer compel managers to profit maximise. At the same time, it
was argued, the external pressures on managers had been diminished by the replacement
of highly competitive markets populated by numerous relatively small firms by much
less competitive, oligopolistic and/or monopolistic markets populated by a small
number of very large firms. In ‘most sectors of the American economy’, Galambos
explains, ‘oligopoly prevailed and, with it, competitive practices that downplayed
short-term price competition and emphasized competition through product and
process innovation and through new forms of marketing’.
33
In these sectors, the argu-
ment ran, market prices had to a significant extent been replaced by ‘administered
prices’, market coordination by planning (both by the state and by corporations them-
selves), and competitive capitalism by ‘monopoly capitalism’.
34
Managers were further
insulated from capital market pressures by their use of internally generated corporate
funds as their primary source of new investment capital.
31 As A Shonfield showed in his Modern Capitalism: The Changing Balance of Public and Private Power (OUP
1965), although there were differences between the capitalism of this period, they all had certain features
broadly in common: a rejection of laissez-faire, and a belief in the positive power of the state and a guided,
planned capitalism.
32 A Berle and G Means, The Modern Corporation and Private Property (Macmillan 1932). The idea that there
had been a separation of ownership and control in the growing number of large joint stock corporations
long predates this. It can be traced as far back as Adam Smith and Karl Marx. In the decades before Berle
and Means it figured in the work of Thorstein Veblen and Walter Lippman in the US, and of RH Tawney,
DH Robertson and Keynes in the UK.
33 L Galambos, ‘The US Corporate Economy in the Twentieth Century’(1996) 3 Cambridge Economic
History of the United States 927, 942.
34 See P Baran and P Sweezy, Monopoly Capital (Monthly Review Press 1966).
8From Lonrho to BHS
The result, it was argued, was that the market- and shareholder-imposed, profit-
maximising logic of capitalism operated in a more muted and restrained manner,
giving managers significantly more decision-making discretion.
35
But how were they
using it? There emerged two rather different accounts of what came to be called ‘man-
agerialism’, one ‘sectional’, the other ‘non-sectional’.
36
The sectional version, exempli-
fied by James Burnham’sThe Managerial Revolution, described the emergence, in a
variety of guises, of powerful new managerial classes acting largely out of self-interest.
Although Burnham’s ideas were attractive to many on the free market right, who
liked the way he lumped together Stalinism, Nazism and the New Deal as examples of
the drift towards totalitarian ‘managerial societies’, most rejected his claims.
37
By con-
trast, the non-sectional version of managerialism suggested that managers, under
pressure from labour, governments and the wider public, were spurning profit maximi-
sation and taking account of the interests not only of shareholders but of employees, cus-
tomers, local communities and society more generally.
38
By the 1950s, in the US and the
UK, this had become the dominant view of what managers were doing and should be
doing. This view was exemplified in the US in the work of Berle himself, and in the
UK in the work of the doyen of twentieth-century company lawyers, LCB Gower.
In the 1930s Berle had engaged in a famous debate with another American corporate
lawyer, Merrick Dodd, about the duties of corporate directors. Berle supported share-
holder primacy for pragmatic reasons. Dodd, on the other hand, argued that directors
owed duties to society as a whole, not merely to shareholders.
39
By 1954, shortly after
the decision in AP Smith Manufacturing Co v Barlow,
40
Berle announced that the argu-
ment had ‘been settled (at least for the time being) squarely in [Dodd’s] favour’: corpor-
ate powers were held in trust by managers ‘for the whole community’.
41
The shift in
Berle’s position was prompted by his belief, shared with many others, that managers,
under less pressure from shareholders and markets, had become subject to a range of
new pressures emanating from government, labour and public opinion that were
forcing them to moderate their behaviour and abandon the single-minded pursuit of
profit.
42
Memories of the Great Depression and the benefits of war-time state planning,
together with the threat of communism and greater government intervention in business
35 In the words of the Harvard economist Carl Kaysen, ‘managers possess great scope for decision-making
unconstrained by market forces’:‘The Social Significance of the Modern Corporation’(1957) 47 American
Economic Review 311, 316.
36 T Nichols, Ownership, Control and Ideology (Allen & Unwin 1969) 43.
37 J Burnham, The Managerial Revolution (John Day 1941). Burnham’s work greatly influenced Orwell and
his novel 1984.
38 Paradoxically, Burnham popularised ‘managerialism’, but Berle’s non-sectional version of it, not his own
sectional version.
39 EM Dodd, ‘For Whom Are Corporate Managers Trustees?’(1932) 45 Harvard Law Review 1145; A Berle,
‘For Whom Corporate Managers Are Trustees’(1932) 45 Harvard Law Review 1365.
40 98 A 2d 581 (NJ 1953). Somewhat ironically, Berle represented AP Smith in this case.
41 A Berle, The 20th Century Capitalist Revolution (Macmillan 1955) 137.
42 Berle wrote of the emergence of a ‘public consensus’to this effect: see A Berle, Power without Property
(Harcourt, Brace 1959) 110–16.
King’s Law Journal 9
affairs, added to the pressures on managers to moderate their behaviour and curb the
excesses of capitalism.
43
In William Bratton’s words, ‘managers were caught inside a
web of countervailing powers and had no way to get out of control’.
44
The resulting changes in corporate managerial practice were reflected in, and
reinforced by, changes in corporate culture. In their public statements a growing
number of managers accepted that they had wider social responsibilities and indicated
they thought this perfectly appropriate given the changing nature and role of corpor-
ations in society: corporations were now entities with social and political—as well as
economic—powers and functions.
45
For Berle, this was manifested in the emergence
of a ‘corporate conscience’.
46
There were, of course, opposition voices—support for tra-
ditional profit-centred business values continued to be voiced—but it is clear from the
contemporary literature that, rhetorically at least, these sorts of views about the corpor-
ation and corporate governance were in the ascendancy. The pages of the Harvard
Business Review, for example, were littered with managerial assertions about the wider
social responsibilities of business, about the professional and service-oriented nature
of management, and about the social need to, and appropriateness of, tempering the
profit motive and balancing different interests. These sorts of public statements con-
vinced many that managers were becoming ‘quasi-public servants’, playing a role ‘as
economic and social allocators, actively assuming public functions’as ‘new industrial
statesmen’. Hence the ideas that this was the ‘golden age of American management’,
and that a socially responsible business elite (a world of ‘innovative technocrats’) and
socially responsible corporations were emerging.
47
The changes in managerial theory
and practice, however, had limited impact on US corporate law.
48
In the UK, Gower similarly argued that directors were now regularly taking account
of non-shareholder interests in their decision-making and suggested that although this
was not sanctioned by law it was perfectly legitimate and supported by public opinion.
Shortly after the publication of his seminal Principles of Modern Company Law in 1954,
Gower visited Harvard and wrote a couple of articles for the Harvard Law Review. The
first was a review of a book by Emerson and Latcham which explored the possibility of
43 In 1948, for example, Donald David, Dean of Harvard Business School (HBS), suggested that good man-
agement was crucial to a capitalist victory over communism: cited in R Khurana, From Higher Aims to
Hired Hands (Princeton 2007) 202–03. In similar vein, others saw business social responsibility as vital
in the struggle to resist greater government intervention in the economy: see Khurana, 441. See also H
Wells, ‘Corporation Law Is Dead’(2013) 15 University of Pennsylvania Journal of Business Law 305,
326–27, 331–32.
44 WW Bratton, ‘The Separation of Corporate Law and Social Welfare’(2017) 74 Washington & Lee Law
Review 767, 770–71. See also Berle, Power without Property (n 42).
45 See Berle, 20th Century (n 41) 25–40.
46 Berle, Power without Property (n 42) 90–91.
47 Management, according to Carl Kaysen, ‘sees itself as responsible to stockholders, employees, customers,
the general public, and, perhaps most important, the firm itself as an institution’: Kaysen (n 35) 313. This
idea underpinned the belief that managers were emerging as a neutral, disinterested, technocratic elite. See
also Bratton (n 44) 770–71.
48 See Wells (n 43) at 311.
10 From Lonrho to BHS
restoring ‘shareholder democracy’, meaning shareholder control of large corporations. A
few years earlier in the UK, this notion had figured prominently in the deliberations and
recommendations of the Cohen Committee on company law reform.
49
In the review
Gower openly questioned Emerson and Latcham’s belief that a restoration of share-
holder control was a ‘Good Thing’. Was it ‘not time’, he asked, ‘to recognise that share-
holder democracy, with its exclusive emphasis on the profit-making element in
corporate activity, has a slightly old-fashioned ring’? It was only when Emerson and
Latcham suggested that ‘the interests of shareholders [might] not be the only interests
…that must be recognised by today’s publicly held corporation’and that ‘the interests of
labor, of the consumer, [and] of the country as a whole’might also be worthy of con-
sideration that Gower thought they had struck a ‘modern note’.
50
A few months later he wrote a second article on the attempted takeover of the
Savoy Hotel Ltd by the property developer Harold Samuel.
51
The incumbent directors
successfully repelled the takeover by selling one of the company’s major assets and
leasing it back with covenants restricting its use. But there were misgivings about
this. ‘Few of those who [had] subscribe[d] their money to joint-stock companies’,
wrote a Times leader-writer, ‘supposed that the managerial revolution had gone
quite so far as that’.
52
Two Board of Trade investigations were held, the second of
which concluded that although the directors genuinely believed that they were
acting in the best interests of the company, they had used their powers for an impro-
per purpose. Gower agreed that the directors’actions were invalid: once they had
conceded that they owed their duties only to the company’s shareholders ‘present
and future’,‘the impropriety of their actions seems obvious’.
53
What he regretted
was that the directors had not ‘come out boldly with an argument that they owed
duties to the company’s employees and customers and to the public, as well as to
the shareholders, and that their actions were justified as the only way in which the
best interests of all these classes could be protected against the misguided threats
of the would-be controller’. After all, he argued, in the 20 years since the Berle-
Dodd debate, ‘public opinion’in England seemed to have ‘hardened in favour of
49 The desire to restore shareholder control underlay the Cohen Committee’s recommendation that share-
holders should be able to remove directors by simple majority vote: Board of Trade, Report of the Com-
mittee on Company Law Amendment (Cmd 6659, 1945) para 130.
50 LCB Gower, review of F Emerson and F Latcham, Shareholder Democracy (Western Reserve University
1954), in (1955) 68 Harvard Law Review 922, 927.
51 Conditions in England at this time were unusually favourable to those, like Samuel, who sought to take
control of companies with undervalued shares, for the government’s post-war policy of ‘voluntary’divi-
dend limitation—which had, according to Gower, been ‘loyally followed by most boards of directors’
(itself indicative of the corporate governance and wider political climate at the time)—meant that the
shares of many companies were being quoted at below the value of the underlying assets (See LCB
Gower, ‘Corporate Control: The Battle for the Berkeley’(1955) 68 Harvard Law Review 1176). There
were, therefore, quick gains to be had, especially as capital gains were not normally taxable. See G Bull
and A Vice, Bid for Power (3rd edn, Elek Books 1961).
52 Gower (n 51) 1182.
53 Ibid (n 51) 1185 and 1190.
King’s Law Journal 11
Dodd’s view’. It had become ‘almost an accepted dogma’, on both left and right, ‘that
management owes duties to the four parties of industry (labour, capital, management
and the community)’. Gower recognised, however, that this sentiment had not yet
‘crystallised into law’.
54
Public opinion and directorial practice in both jurisdictions
were thus at odds with the letter of the law.
In the second edition of Principles, published in 1957, Gower went even further. There
was, he argued, ‘growing recognition that if the major part of industry and commerceis to be
left to un-nationalised corporate enterprise, substantial modifications will have to be made
in the legal framework of companies’.Writersof‘very different political leanings’,he
explained, had expressed the view that ‘company law is unreal in that it treats the
company as owing duties only to its members, whereas in fact its relationships with its
workers, the consumers of its products, and the community as a whole, are of equal if
not greater importance’.
55
The legal position—that directors could have regard to
‘outside interests’only in so far as they furthered ‘the primary object of making profits
for the shareholders’—was, Gower suggested, ‘increasingly anachronistic’.Therealitywas
that ‘directors habitually have regard to [non-shareholder] interests’,somuchsothatit
was ‘becoming common form for them to declare that industry owes duties to employees,
consumers and the public, as well as to members’.
56
The nationalised (public) corporation
merely ‘recognise[d] openly what the public company is coming to recognise tacitly: that an
enterprise should be run for and on behalf of the public as a whole and not merely for the
benefit of a small section of it represented by the shareholders’.
57
That views of this sort were widely shared became clear a few years later following
the decision in Parke v Daily News.
58
The issue was whether it was legitimate for the
directors of a company which was about to cease trading to make gratuitous payments
to the employees who were about to lose their jobs. Reflecting the power of labour
during this period, one of the principal reasons the directors were proposing to do
this was to minimise the risk of trade union opposition to a proposed takeover of the
defendant company’s newspapers.
59
The directors were challenged by a shareholder
claiming it was ultra vires and incapable of shareholder approval. Plowman J agreed.
The duty of the directors was to ‘the company’, meaning the ‘shareholders as a
general body’, and however ‘laudable’the directors’motives, they were not legally per-
mitted to make the payments. Commenting on the decision, Bill Wedderburn suggested
54 Gower (n 51). US public opinion, he argued, did not support the view that ‘corporations exist for the sole
purpose of making profits for their stockholders’. Gower nevertheless saw virtue in takeovers in that they
stopped the emergence of self-perpetuating managerial oligarchies and acted as a spur to efficiency. This
led him (and others) to dissent from the recommendations of majority of the Jenkins Committee on the
question of shares with restricted or no voting rights: Board of Trade, Report of the Company Law Com-
mittee (Cmnd 1749, 1962) 207–10.
55 LCB Gower, Principles of Modern Company Law (2nd edn, Stevens 1957) 56.
56 Gower, Principles (n 55) 475–76. This was reiterated in the 3rd edition of the book (1969) 522.
57 Gower, Principles (n 55) 231.
58 [1962] 3 WLR 566, [1962] 2 All ER 929 (ChD).
59 This is detailed in the case report and highlighted in the Pennington case note: RR Pennington, ‘Terminal
Compensation for Employees of Companies in Liquidation’(1962) 25 Modern Law Review 715.
12 From Lonrho to BHS
that English law was now out of line with not only directorial practice but many other
jurisdictions where directors were ‘allowed, or required, to consider the interests of
persons other than the shareholders (eg., the nation’s, or the employees’interests)’.It
was, he ‘respectfully suggested’,‘time for the Court of Appeal to put a twentieth-
century face upon this part of English law’.
60
Robert Pennington agreed. ‘An employee
of many years standing’, he suggested, ‘surely has as recognisable an interest in the con-
tinuance of his employment as a shareholder has in the continued existence of his shares,
and if both interests cease to exist on the liquidation of the company, there seems no
reason why the company’s assets should be appropriated to satisfy the shareholders’
interests alone’. Was it really satisfactory ‘that directors should be required by law to
manage the company’s affairs solely with a view to the financial benefit of shareholders’?
There were other interests deserving of recognition: ‘It would, surely, be more in accord-
ance with modern views about the functions of business enterprises in society to relieve
directors from this myopia which the law forces on them’. Why not legally require the
directors of public companies to take account of the interests of employees and the wider
public, as well as of shareholders, as in Germany?
61
This was stakeholding avant la lettre.
In 1979 and on the eve of Margaret Thatcher and the neoliberal revolution, Gower was
still expressing views of this sort. In the fourth edition of Principles, published in that year,
he noted that, in a parliamentary debate on what was to become the 1967 Companies Act,
the then President of the Board of Trade, Douglas Jay, had indicated that the government
intended to ‘legislate for wider reforms in the structure and philosophy of our company
law’based on a re-examination of ‘the whole theory and purpose of the limited joint stock
company, the comparative rights and obligations of shareholders, directors, creditors,
employees and the community as a whole’.
62
‘Unfortunately’,Gowerlamented,
‘nothing of the sort emerged’, with the result that ‘at present …our company legislation
is in greater disarray than at any time since the beginning of the century—both in content
and in form’.
63
Elsewhere in the book he argued that in the US the belief that companies
carried such responsibilities had become ‘widely held’,
64
noting the CBI had also ‘recog-
nised the need for a public company to accept social responsibilities, over and above what
the law require[d], in regard to such matters as the “environmental and social conse-
quences of its business activities”’. Gower also recognised, however, that these ideas
‘posed difficulties for directors and managers whose over-riding legal duty is still to act
bona fide in what they consider to be the best interests of their company, which, at
present, is translated by English law as the long-term interests of their shareholders’.
65
The insertion of ‘at present’reflected Gower’s hope that the law might change. Later in
60 KW Wedderburn, ‘Ultra Vires and Redundancy’(1962) 20 Cambridge Law Journal 141, 143, 146.
61 Pennington (n 59) 718–19.
62 HC Deb 14 February 1967, vol 741, col 359.
63 LCB Gower, Principles of Modern Company Law (4th edn, Stevens 1979) 56.
64 Gower (n 63) 62–63.
65 Gower (n 63) 62–63. Gower was referring here to the CBI’s 1973 Watkinson Report, The Responsibilities of
the British Public Company (CBI 1973), which was designed to stave off the threat of industrial democracy
posed by the EC’s Draft 5th Directive on Company Law, OJ [1972] C131/49, which advocated adoption of
King’s Law Journal 13
the book, he reiterated his view that directors not only should have regard to the interests
of employees, consumers and the wider society, as well as of shareholders, but that they did
this as a matter of empirical fact. For Gower, the lack of acknowledgement of ‘the position
of the worker in the corporate structure’was ‘anachronistic’and a ‘failure of company
law’. He welcomed clause 46 of the 1978 Companies Bill, which later became s 46(1) of
the Companies Act 1980 and s 309(1) of the Companies Act 1985, as ‘desirable’.
66
CAPITALISM TRANSFORMED?
There is no doubt that during the post-war period the operating logic of capitalism was
tempered. Although belief in profit maximisation was still alive and well in some quar-
ters,
67
capital’s freedom of movement was constrained and labour was relatively strong,
with the result that managers often had little choice but to bend, at least to an extent, to
other interests. Class compromise was facilitated by consistently good levels of economic
growth (OECD countries enjoyed real GDP growth of 4–5 per cent per annum in the
1950s and 1960s). The resulting changes in corporate practice generated further
changes in business culture and education, which themselves fed back into practice. Cru-
cially, the dilution of shareholder primacy by corporate managers was increasingly seen
in many quarters not only as a fact of life but as legitimate. Was it really appropriate to
continue to regard passive, rentier shareholders as ‘owners’entitled to have corporations
run in their exclusive interests and to regard these powerful oligopolistic enterprises as
purely ‘private’entities?
68
Alongside these more ‘socialised’corporations, there emerged a softer, more inclus-
ive, less rapacious, less unequal, less scandal-ridden, more humane and ‘acceptable’form
of capitalism. During this period, the distribution of the social product was determined
the German two-tier board structure. See S Wheeler, ‘Gone and Almost Entirely Forgotten: The Watkin-
son Report’(2009) 60 Northern Ireland Legal Quarterly 263.
66 Gower (n 63) 66–67, 578–80. Section 309 read: ‘The matters to which the directors of a company are to
have regard in the performance of their functions include the interests of the company’s employees in
general, as well as the interests of its members’.
67 See, for example, FX Sutton and others, The American Business Creed (Harvard University Press 1956).
68 On this, see P Ireland, ‘Financialization and Corporate Governance’(2009) 60 Northern Ireland Legal
Quarterly 1, 8–18. In Europe the post-war decades saw many support enhanced workers’rights and rep-
resentation (an idea that culminated in the UK in the Bullock Report of 1978: Department of Trade, Report
of the Committee of Inquiry on Industrial Democracy (Cmnd 6706, 1977)), with some advocating the relega-
tion of shareholders to the status of preferred creditors. A ‘close examination’of the ‘rights conferred by
shares and debentures’, Gower argued in 1957, revealed the ‘impossibility of preserving any hard and fast
distinction between them which bears any relation to practical reality’: Gower (n 55) 321–22. In the US,
Robert Calkins, Dean of Columbia School of Business in the 1940s, indicated that he didn’t think large
corporations could be neatly characterised as either ‘public’or ‘private’. In similar vein, the sociologist
Philip Selznick listed the institutions of industry among those he thought had ‘become increasingly
public in nature’: both quoted in R Khurana, From Higher Aims to Hired Hands: The Social Transformation
of American Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton Univer-
sity Press 2007) 201.
14 From Lonrho to BHS
not only by market forces but by complex tripartite negotiations between capital, labour
and the state. The forms of negotiation and distribution varied from place to place, as did
the outcomes, but, overall, as Piketty and others have documented, income and wealth
inequality declined. Underpinning this softening of the logic of capitalism and moder-
ation of corporate behaviour was, of course, the changed balance of class forces and the
changed legal, financial and political structures that it brought. It is with some justifica-
tion that Jeffrey Gordon claims that ‘the 1950s were the high-water mark’of both ‘man-
agerialism in corporate governance’and ‘stakeholder capitalism in the United States’.
69
The same was true of the UK.
It is not insignificant, perhaps, that the loosening of the competitive logic and
market imperatives of capitalism seems to have coincided with a decline in the inci-
dence of serious managerial misbehaviour. Brian Cheffins observes that although
therewereexamplesofmanagerialmisconductinthe1950s,
70
‘corporate scandals
were rare’, despite the relative absence of shareholder vigilance.
71
Richard Roberts
agrees, arguing on the basis of his examination of reporting in the Financial Times
that while there had been ‘astringoffinancial scandals and debacles’in the first 30
or so years of the century, the ‘decades from the mid-1930s to the mid-1960s were
notably free of major scandals, both in the City and Wall Street’.
72
In similar vein,
Manfred Bienefeld notes that between 1948 and 1973, there wasn’t a single major
banking crisis as defined by the World Bank, in stark contrast to what had happened
before and what has happened since.
73
This was the wider context in which Heath
made his remarks.
More contentious was the question of whether the changes marked a major systemic
shift. In the US, Berle clearly believed that the changes were both radical and permanent.
The rise of the corporate economy and dispersal of shareholdings, he argued, had dis-
empowered shareholders, empowered managers and freed industry from the naked
pursuit of profit. It had also forced the state to intervene to ensure that this newly
acquired managerial power was used in the interests of society as a whole. The ‘insti-
tution of private property’and ‘in limited measure the institution of the “market
economy”’ had been maintained,
74
but there had been a ‘twentieth century capitalist
revolution’.
75
By the 1950s the idea that the US had become a ‘people’s capitalism’
69 JN Gordon, ‘The Rise of Independent Directors in the United States, 1950-2005’(2007) 59 Stanford Law
Review 1465, 1511.
70 For some examples, see B Cheffins, ‘Corporate Governance since the Managerial Capitalism Era’(2015) 89
Business History Review 717, 721.
71 B Cheffins, ‘How Corporate Governance Moved to the Forefront of Management’(LSE blog contribution)
<http://blogs.lse.ac.uk/businessreview/2016/04/05/how-corporate-governance-moved-to-the-forefront-
of-management/> accessed 28 May 2018.
72 R Roberts, ‘Financial Times—Scandals and Debacles’(2007) Unpublished manuscript. Copy available
from author.
73 M Bienefeld, ‘Suppressing the Double Movement to Secure the Dictatorship of Finance’in A Bugra and K
Agartan (eds), Reading Karl Polanyi for the Twenty-First Century (Palgrave Macmillan 2007) 13 at 21–22.
74 A Berle, The American Economic Republic (Harcourt, Brace 1963) 99.
75 Berle, The 20th Century (n 41); Berle, Economic Republic (n 74) 169.
King’s Law Journal 15
was taking root.
76
In the UK, the influence of these ideas was apparent in the intellectual
struggles that racked the Labour Party. As early as 1940 Evan Durbin, anxious to reduce
the influence of Marxist ideas within the Party, was drawing on Berle and others to
suggest that a new, transformed, more ‘socialised’variety of capitalism was coming
into existence.
77
After Durbin’s death, the baton was taken up by another ‘revisionist’
Labour Party intellectual, Anthony Crosland.
Crosland believed that in the post-war years the traditional logic of capitalism had
been irrevocably undermined. Like Berle, he thought that shareholders had been
largely disempowered by the rise to dominance of joint stock corporations and transfer
of control to ‘non-owning managers’.‘Top management’, he argued, ‘is [now] indepen-
dent not only of the firm’s own shareholders, but increasingly of the capitalist or prop-
erty-owning class as a whole, including financial institutions’.
78
At the same time the rise
of strong trade unions and powerful ‘anti-capitalist’political parties had, in a period of
low unemployment, seen labour emerge as a formidable counter-weight to capitalist
power, with the state brokering relations between them and playing an ever larger
role in managing the economy. Co-operation was becoming as important as compe-
tition. The result was a ‘quite different configuration of economic power’which was
impacting on business attitudes and ethics. ‘The decline of capitalist control [did] not
mean that the profit motive ha[d] disappeared’, but maximum profit was no longer
pursued ‘at all costs’. Echoing Gower, he argued that ‘private industry’had become
‘very sensitive to public opinion’and ‘traditional capitalist ruthlessness’had ‘largely dis-
appeared’.‘Most businessmen’were now ‘tinged by …more social attitudes and
motives’.
79
With ‘private industry …at last becoming humanised’, capitalism was
‘undergoing a metamorphosis into a quite different system’.
80
‘Capitalist features and
attitudes no longer predominated’, and it was, therefore, ‘misleading’to refer to
Britain as a capitalist society.
81
A‘post-capitalist society’was emerging.
82
Crucially, for Crosland, this meant, as it had for Keynes many years earlier,
83
that
seeking to take industry into public ownership (nationalisation) was no longer necessary
to achieve socialist goals. Nor indeed were radical and politically contentious changes to
corporate rights structures. In Crosland’s view, ownership was ‘unimportant’.
84
As a
76 For a discussion and debunking of this, see A Preis, ‘Myth of “People’s Capitalism”’ (1962) 23 Inter-
national Socialist Review 3.
77 E Durbin, The Politics of Democratic Socialism (Routledge 1940). He also drew on earlier Labour Party
intellectuals like RH Tawney.
78 CAR Crosland, The Future of Socialism (1956, rev edn, Schocken Books 1963) 15. CAR Crosland, ‘The Tran-
sition from Capitalism’in RHS Crossman (ed), New Fabian Essays (Turnstile Press 1952) 33 at 35, 38–41.
79 Crosland, Future of Socialism (n 78) 17–22. Later in the book, he wrote: ‘what is wrong with large public
companies to-day …is not a lack of “public responsibility”’, 271.
80 Crosland, ‘The Transition from Capitalism’(n 78) 35.
81 Crosland, Future of Socialism (n 78) 23, 34–35.
82 Crosland, ‘The Transition from Capitalism’(n 78) 37–38.
83 JM Keynes, ‘The End of Laissez-Faire’(1926) <www.panarchy.org/keynes/laissezfaire.1926.html>
accessed 28 May 2018.
84 Crosland, Future of Socialism (n 78) 251.
16 From Lonrho to BHS
result, when it came making changes to the legal position of shareholders, workers and
the community, Crosland confessed to feeling ‘rather neutral’,ashe‘doubt[ed] whether
a major change [would be] worthwhile in practice, or indeed whether the legal issue
really much matters’.
85
He favoured greater consultation of workers at local level (but
not ‘joint management’), ‘a more equitable distribution of non-pecuniary privileges
and less social gap’between staff and labour, and greater involvement of trade unions
in policymaking at national level (‘high-level industrial democracy’). He rejected propo-
sals for government and worker directors. Trying to effect ‘major changes in company
law’which would diminish or eliminate the residual proprietary rights of shareholders
would simply not be worth the effort: large companies were already being ‘socialised’,
changing the law ‘would make no difference to the underlying reality’.
86
This did not
prevent industrial democracy becoming a major issue in the 1960s and 1970s, but the
proposals of the Bullock Report
87
for two-tier boards were diluted by the Labour Gov-
ernment in a subsequent White Paper
88
and discarded altogether when the Conserva-
tives returned to power in 1979.
NEOLIBERALISM: THE RISE TO DOMINANCE OF FINANCIAL CAPITAL
By the early 1970s, however, cracks were beginning to appear in the house-trained, social
democratic model of capitalism constructed in the post-war years. With profitability
falling and stagnation threatening once more, the post-war accommodation between
capital and labour came under renewed pressure. Initially, the distributional conflicts
that resulted were tempered by wage rises for labour paid for by price increases. But
this merely displaced the problem, which now manifested itself in rising inflation.
Growing industrial unrest, amplified by the relatively poor performance of British capit-
alism, provided the backdrop to the Donovan Commission (1965–68),
89
In Place of Strife
(1969)
90
and the Industrial Relations Act 1971.
91
As noted earlier, it also provided the
immediate backdrop to the 1973 debate in which Heath, asked to condemn Lonrho,
spoke of the ‘unacceptable face of capitalism’.
Profitability problems and the impact on capital of the countervailing power of
labour underlay the backlash that began to gather force in the 1970s. This backlash
was exemplified by a memorandum written by Lewis Powell for the US Chamber of
Commerce in 1971, shortly before he became a Supreme Court Justice. Entitled
‘Attack on American Free Enterprise System’, it called on corporate America to
85 Crosland, Future of Socialism (n 78) 265.
86 Crosland, Future of Socialism (n 78) 271–76.
87 Department of Trade, Report of the Committee (n 66) (Cmnd 6706, 1977).
88 HM Government White Paper, Industrial Democracy (Cmnd 7231, 1978).
89 Royal Commission, Report of the Royal Commission on Trade Unions and Employers’Associations (Cmnd
3623, 1968).
90 HM Government White Paper, In Place of Strife: A Policy for Industrial Relations (Cmnd 3888, 1969).
91 Industrial Relations Act 1971 (c 72).
King’s Law Journal 17
aggressively reassert itself.
92
Emblematic of the fightback that capital began to launch
against labour at this time, the sentiments expressed in the Powell memorandum fore-
shadowed the emergence of a range of right-leaning think tanks promoting free market
ideas and policies that prioritised privatisation, marketisation, selective de-regulation
and the interests of capital over labour. In a highly complex, multifaceted process of sus-
tained institutional transformation with intertwined economic, legal, political and ideo-
logical dimensions, the fetters on capital (and especially financial capital) were removed
and the socially democratic capitalism of the post-war period gradually dismantled.
There has been a tendency to portray these changes—and particularly the globalisa-
tion of markets, and especially financial markets—as largely inevitable, as the products
of unstoppable technological and market forces (the rise of global telecommunications,
information technology, containerisation and so on), rather than the products of politi-
cal choices made by states.
93
This belief underlies the idea that ‘there is no alternative’
(TINA). But, as Susan Strange says, ‘it is very easily forgotten that [international finan-
cial] markets exist under the authority of and by permission of the state, and are con-
ducted on whatever terms the state may choose to dictate, or allow’.
94
Indeed, it is
the political dimensions of ‘globalisation’—a term which is often used in such a way
as to conceal these dimensions—that has led David Harvey to argue that neoliberalism
is best viewed as a counter-revolutionary ‘political project’aimed at reducing the power
of labour and strengthening the position of capital.
95
There is undoubtedly much to be said for this view. Recent decades have seen a dra-
matic erosion of the post-war institutional framework and its collective social protec-
tions. Not only has the reach of markets been extended through privatisation and
commodification, market forces have been deliberately intensified in carefully selected
areas.
96
The changes have taken locally diversified forms but their effect has been
broadly the same: to alter the balance of power between capital and labour in favour
of the former. Labour has been weakened by the assault on trade union and employee
legal rights, and by the changes associated with ‘globalisation’, particularly the shifting
of production to low wage regions and importation of cheaper foreign labour into dom-
estic markets. At the same time, the fetters on financial capital have been removed. In
1973, the year of the Lonrho scandal, an international agreement to move from fixed
to floating exchange rates marked the beginning of the end for Bretton Woods. The
gradual abandonment of controls over international capital movements followed. We
have moved from tightly regulated, nationally based financial systems centred on com-
mercial banking to a loosely regulated, global financial system centred on investment
92 <http://law2.wlu.edu/deptimages/Powell%20Archives/PowellMemorandumTypescript.pdf> accessed 28
May 2018.
93 See E Helleiner, States and the Reemergence of Global Finance (Cornell University Press 1994) vii, 1.
94 S Strange, Casino Capitalism (Basil Blackwell 1986) 29.
95 D Harvey, A Brief History of Neoliberalism (OUP 2005). See also <www.jacobinmag.com/2016/07/david-
harvey-neoliberalism-capitalism-labor-crisis-resistance/> accessed 28 May 2018.
96 Thus the full force of market forces has been unleashed on labour, but not always on capital, as the bank
bailouts that followed the 2007–08 crash showed.
18 From Lonrho to BHS
banks. Genuinely international capital markets have emerged and, aided by computer-
isation, there have been phenomenal increases in capital flows. Innovation is incessant.
With states much more vulnerable to capital flight, governments have lost much of the
policy autonomy they enjoyed in the post-war decades. This has undermined the ability
of democracy to rein in capitalism.
97
The social and political consequences of stagnant
or declining real wages, diminishing social provision and protection, the disempower-
ment of national citizenries, and subordination of states to global financial markets
and technocratic supranational institutions are now becoming manifest.
During this period, the corporate legal form changed relatively little, though the
Companies Act 1948 did effect a significant strengthening of shareholder rights by
enabling shareholders to remove directors by simple majority vote whereas before a
75 per cent majority had been required.
98
As Andrew Johnston observes, shortly after
this ‘the hostile takeover burst onto the scene’.
99
The power of shareholders has,
however, been augmented still more by developments outside company law, a couple
of which are worth mentioning. First, the rules on takeovers were modified by the intro-
duction in 1968 of the City Code on Takeovers and Mergers, so as to prohibit directors
from acting to frustrate bids in the interests of employees and other stakeholders. This
helped to pave the way for leveraged buyouts and has served to intensify the financial
market pressures to which corporate managers are subject.
100
Secondly, the re-concen-
tration of previously dispersed holdings of shares and other forms of financial property
in financial institutions (pension funds, mutual funds, hedge funds and the like) has re-
empowered financial property owners, including shareholders, as a class. As late as the
mid-1960s in the US, physical persons held 84 per cent of publicly listed shares. They
now hold less than 40 per cent. In the UK, it has been estimated that by 2014 individuals
owned only 12 per cent of quoted shares.
101
Acting through their institutional represen-
tatives, shareholders have been able to make much more effective use of their residual
proprietary rights to (re)assert their power in and over corporations, shaping and in
97 Also worthy of note here are the ‘four freedoms’established by the EU and the so-called ‘New Constitu-
tionalism’—new mechanisms for investor protection that have been developed using instruments such as
Bilateral Investment Treaties. On the latter, see D Schneiderman, Constitutionalizing Economic Globaliza-
tion (CUP 2008).
98 Companies Act 1948, s 184.
99 A Johnston, ‘The Shrinking Scope of CSR in UK Corporate Law’(2017) 74 Washington & Lee Law Review
1001, 1005, 1009–10, 1016–18. See also L Hannah, ‘Takeover Bids in Britain before 1950’(1974) 16
Business History 65. The Savoy Hotel takeover discussed by Gower (see earlier) being an example.
100 See A Johnston, ‘Takeover Regulation: Historical and Theoretical Perspectives on the City Code’(2007) 66
Cambridge Law Journal 422. As he points out, Companies Act 1985, s 309 did not operate in the takeover
context: Johnstone, ‘Shrinking Scope’(n 99) 1024–26. See also, P Davies, ‘Shareholder Value, Company
Law, and Securities Markets’in K Hopt and E Wymeersch (eds), Capital Markets and Company Law (OUP
2003) 261.
101 See S Celik and M Isaksson, ‘Institutional Investors and Ownership Engagement’OECD Journal: Financial
Market Trends, Volume 2013/2, 93; ONS Statistical Bulletin, Ownership of UK Quoted Shares: 2014. In the
UK, foreign ownership has increased dramatically, rising from 7% to 53% between 1963 and 2012.
Around 46% of this foreign ownership is based in North America, and most of this is institutionally
held: ONS, 11–12.
King’s Law Journal 19
some cases directing the behaviour of executives towards ‘maximising shareholder
value’.
This institutional power is exercised both directly in individual companies and
indirectly over the corporate sector as a whole in globalised financial markets. Indeed,
the operations of the latter have rendered it ubiquitous.
102
The competition both
between and within institutions—portfolio managers are routinely subjected to
regular (quarterly) market-based performance evaluation—has intensified the market
pressures on corporate managers to deliver ‘shareholder value’. Permanently under
threat, managers often have little choice but to prioritise dividends and share price
over investment in new plant and equipment, in research and development, and in
developing the skills of the workforce. Failure to meet the expectations of financial insti-
tutions and security analysts renders corporations vulnerable to takeover and managers
vulnerable to removal.
103
This transfer of power from boardrooms to financial markets
has seen a highly financialised, share-price-focused logic imposed on corporate man-
agers. There has been a steady decline in the share of profits retained for investment,
104
share buy-backs have proliferated, accounting rules have been stretched, financial state-
ments manipulated, and ‘externalities’ignored or concealed.
The resulting changes in managerial behaviour have not, of course, only been a matter
of externally imposed market imperatives. Executive remuneration has been re-designed
to better align the interests of managers and shareholders. Performance related pay
(share options, bonuses linked to share price and the like) has encouraged managers to
pursue shareholder value maximisation by making it personally very lucrative: since the
1990s executive pay and perks have sky-rocketed. These developments have transformed
corporate culture. The image of the ideal executive has changed ‘from one of a steady,
reliable caretaker of the corporation and its many constituencies to that of a swashbuck-
ling, iconoclastic champion of shareholder value’. The ideals of professionalism developed
in American business schools to create ‘a managerial class that would run America’slarge
corporations in a way that served the broader interests of society rather than the narrowly
defined ones of capital and labor’,havebeen‘swept away’.
105
These financialised forms of governance have been intensified by the rise of new types
of financial institution focused on securing quick financial gains. Beginning in the 1980s,
there emerged a number of specialist takeover firms who sought to use borrowed money
to gain control of corporations before ‘restructuring’them, recapitalising their revenue
streams and selling their securities at a profit. These leveraged buyouts (LBOs) rendered
even large corporations vulnerable to take over. After dwindling during the 1990s
102 They also exert considerable power over states: see Wolfgang Streeck, Buying Time (Verso 2014).
103 As Grahame Thompson says, ‘even the largest global firms can be stalked by activist investors—hunted by
private equity or sovereign wealth funds seeking added shareholder value extraction …Few companies,
however large or internationalised, are immune from the threat of takeover’: G Thompson, The Consti-
tutionalization of the Global Corporate Sphere (OUP 2011) 1.
104 See, for example, E Stockhammer, ‘Shareholder Value Orientation and the Investment-Profit Puzzle’
(2005) 28 Journal of Post Keynesian Economics 193.
105 Khurana (n 43) 3–4, 20.
20 From Lonrho to BHS
downturn, debt-financed takeovers have enjoyed a resurgence with the emergence of
private equity (PE) firms operating with inherently short-termist business models.
106
Eileen Applebaum and Rosemary Batt’s comprehensive study of PE in the US suggests
that while PE firms occasionally provide the investment and management expertise
needed to help to turn companies around or grow, this is exceptional.
107
More usually
they use debt to engineer financial deteriorations in the balance sheets of companies
which are then used as a pretext for forcing through radical cost-cutting operational
changes, usually involving job losses, greater job precarity, cuts to pay and social benefits
(like pensions), poorer working conditions, and so on.
108
PE’s search for quick capital
gains usually has an immediate negative impact on the workforce and communities,
both of which tend to be seen as disposable or substitutable. The employees in companies
bought by PE, writes Robert Peston, ‘frequently undergo massive and unsettling changes
in their working practices for which the rewards go disproportionately to senior managers
and owners’.
109
There is also considerable evidence that PE takeovers often damage the
long-term productive health of firms.
110
We shouldn’t be surprised by this. ‘After many
years observing the leaders of this industry’,Pestonwrites,‘Ifound[it]shocking’that
so many of them ‘view businesses in a very impersonal and blinkered fashion’,seeing
them as ‘property and chattels, and statistics about cash flows and market shares’.They
had ‘little empathetic understanding of a business as a social institution wholly dependent
on its people’. There was ‘an unattractive, cold calculation’to their business style.
111
Cru-
cially, although the practices of these takeover firms vary between countries and represent
only a small proportion of the institutional market, their aggressive and highly financia-
lised approach is not only spreading but having an impact on corporate practices more
generally. They have made an important contribution to the processes whereby financia-
lisation has permeated even non-financial corporations, hollowing them out and encoura-
ging managers to see firms as bundles of assets in which production (often now
outsourced) is secondary. In this sense, as Julie Froud has pointed out, ‘private equity is
not a special case’. PE partners have instead acted as ‘pioneers who have developed and
tested out forms of financial and workforce engineering that have increasingly been nor-
malized by public corporations’. Two noteworthy examples of practices pioneered by PE
106 Typically, a fund is raised, business assets purchased, operations and finances re-engineered, the assets sold
and the investment returns distributed.
107 E Applebaum and R Batt, Private Equity at Work (Russell Sage 2014).
108 The cost-cutting measures typically include selling off parts of the company, asset-stripping, outsourcing
and de-unionisation. In the US PE firms also often use loopholes in pension regulations in ways that
reduce or destroy the savings of current and future pensioners.
109 R Peston, Who Runs Britain (Hodder 2008) 44.
110 The bankruptcy rate of PE companies is far higher than that of public corporations: see interview with
Applebaum and Batt <www.nakedcapitalism.com/2014/12/andrew-dittmer-eileen-appelbaum-
rosemary-batt-private-equity-really-works.html> accessed 28 May 2018. Paradoxically, given the impact
of PE on workers (lower wages, fewer jobs, reduced welfare and pension benefits, union de-recognition,
and so on), pension funds linked to unions, desperately searching for higher yields to secure the financial
viability of pension and health-care funds, have been significant investors in PE firms.
111 Peston (n 109) 44–46.
King’s Law Journal 21
which have spread across the corporate sector are the use of high levels of debt and tax
arbitrage. In Froud’s words, there has been ‘a kind of convergence of behaviour of orga-
nized money’, through which the ‘cynical financialized behaviour’of financial intermedi-
aries has come to ‘play an increasingly important role in shaping economic activity and
social life’.
112
PE just takes financialised governance ‘to the extreme’.
113
The result has been the emergence of a ‘second financial hegemony’,
114
albeit one
which differs radically from its predecessor in that in the first hegemony of the late nine-
teenth and early twentieth centuries ‘on the whole finance was still subordinate to pro-
duction …the capital accumulation process continu[ing] to be focused on industrial
capital’, whereas now the relationship has been ‘inverted’.
115
Struggling to find profitable
outlets for investment in production, capital has sought profit from investment in finan-
cial, rather than real productive, assets, hence the huge increases in the financial asset
portfolios of non-financial corporations. The highly financialised, neoliberal capitalism
that has emerged is singularly unconducive to socially responsible or ethical behaviour.
Partly as a result of the relentlessness and intensity of the financial market pressures they
face and partly because of a growing culture of greed, managers pursue short-term finan-
cial performance with little or no regard to, or sense of responsibility for, the long-term
future of firms, let alone for the interests of employees (or the employees of subordinate
subcontractors), the communities and societies within which the firms operate, or the
environment.
116
With financial capital liberated and labour struggling to provide an
effective countervailing force, the logic of capitalism and its market imperatives have
been not only reasserted but extended and intensified. This has precipitated a cultural
descent into Götz Briefs’‘ethics of the least restrained’, with the result that what
could in 1973 be plausibly described as a mere ‘facet’has become much closer to a norm.
We should not, then, be surprised that, on occasions, as in the BHS case, governance
descends into blatant looting and asset-stripping. BHS was an extreme case, but it was
hardly out of character with the spirit of the age, as the recent collapse of Carillion,
‘the very epitome of the modern financialized firm’, has shown.
117
BHS was truly
112 J Froud, ‘Book Review’(2015) 13 Socio-Economic Review 813. PE practices, having begun and developed in
the US, are becoming more common in Europe.
113 M Hauptmeier, ‘Book Review’(2015) 13 Socio-Economic Review 816.
114 G Dumenil and D Levy, Capital Resurgent (Harvard University Press 2004).
115 P Sweezy, ‘The Triumph of Financial Capital’(June 1994) 46(2) Monthly Review <https://monthlyreview.
org/1994/06/01/the-triumph-of-financial-capital/> accessed 28 May 2018.
116 In the US corporations abandoned earlier policies of ‘retain and invest’in favour of policies of ‘downsize
and distribute’: see W Lazonick and M O’Sullivan, ‘Maximizing Shareholder Value: A New Ideology for
Corporate Governance’(2000) 29 Economy and Society 13. In the UK there was a marked upward shift in
pay-outs from 13–20% in the 1980s to 20–35% in the 1990s and 2000s: J Froud and others, Financializa-
tion and Strategy (Routledge 2006) 87–88. The recent collapse of Carillion exemplifies the pitfalls of finan-
cialised governance in which ‘dividends and share buybacks come at the expense of either wages,
employment or investment’: Adam Leaver, ‘Out of Time: The Fragile Temporality of Carillion’s Accumu-
lation Model’<http://speri.dept.shef.ac.uk/2018/01/17/out-of-time-the-fragile-temporality-of-carillions-
accumulation-model/> accessed 28 May 2018.
117 Leaver (n 116). Carillion went into compulsory liquidation in January 2018, having taken on too many
contracts on small margins and racked up debt. The company’s rising debt pile did not prevent the
22 From Lonrho to BHS
exceptional only in that it was possible to attach moral (if not legal) culpability to a
specific individual and to mobilise public and political opinion against him, forcing a
partial replenishment of the company’s pension fund. In the normal case, directors
are rarely prosecuted
118
and shareholders, although continuing to enjoy residual pro-
prietary (and control) rights, are absolved from both legal liability for corporate debts
and moral responsibility for corporate misdemeanours. With shares almost always
fully paid-up, de jure limited liability has become de facto no-liability, and with compa-
nies regarded in both law and common sense as reified entities radically separate from
their members, shareholders are rarely considered in any way responsible for corporate
malfeasance.
119
Responsibility for dealing with most of the deleterious consequences of
contemporary corporate governance (whether environmental disasters, lost jobs, lower
wages, lost pensions or growing inequality) tends to fall on states—states whose ability to
raise taxes to deal with these consequences has been seriously undermined (in part by
those very forms of governance) and who are themselves now seriously constrained
by financial markets.
120
Thus following the great financial crash the costs of financialised
governance were socialised, but not the corporations involved.
NEOLIBERALISM: GOOD FOR CAPITAL BUT NOT FOR CAPITALISM?
The sharp rises in income and wealth inequality documented by Piketty and others
suggest that the changes in the balance of power between capital and labour, and
between capital and states, have, at least in certain respects, served capital well. The
share of the social product appropriated by the financial-property-owning elite (the ‘1
per cent’or less who own the vast bulk of these forms of property) has grown.
121
board from continuing to misrepresent the company’sfinancial state, or from continuing to pay them-
selves huge salaries (and bonuses), and rewarding shareholders with very good dividends. In contrast,
they did very little to reduce the growing deficit in the pensions fund of its 40,000 global staff. Indeed,
Carillion raised dividends every year for 16 years while running up a pensions deficit of over £500m.
118 J Taylor, ‘Why Have No Bankers Gone to Jail?’(History & Policy, Policy Papers, 14 November 2013)
<www.historyandpolicy.org/policy-papers/papers/why-have-no-bankers-gone-to-jail> accessed 28 May
2018.
119 On the Janus-faced nature of corporate shares and the way in which they combine proprietary (insider)
rights with (outsider) creditors privileges, see P Ireland, ‘Corporate Schizophrenia: The Institutional
Origins of Corporate Social Irresponsibility’in N Boeger and C Villiers (eds), Shaping the Corporate Land-
scape (Hart 2017).
120 See W Streeck, Buying Time (Verso 2014).
121 In the 1980s the share of national income accruing to financial institutions and rentier owners of financial
property began to rise across the globe: see Epstein (n 13) 3–6; G Dumenil and D Levy, ‘Costs and Benefits
of Neoliberalism: A Class Analysis’in Epstein, Financialization and the World Economy (n 13) 23; G
Epstein and A Jayadev, ‘The Rise of Rentier Incomes in OECD Countries’in Epstein, Financialization
and the World Economy (n 13) 42. Beneficial ownership of these shares—and, indeed, in all forms of finan-
cial property—is very heavily concentrated amongst the very wealthy. As Gavin Jackson says, ‘only the very
rich have substantial financial wealth’: notwithstanding claims about creating a ‘shareholder democracy’
and an ‘ownership society’,‘Britain is not a country of widespread capital ownership’:‘Who Owns Brit-
ain’s Companies?’FT Data (27 January 2016).
King’s Law Journal 23
This group has succeeded in largely detaching itself from the fate of the societies it has
plundered. Capitalism, however, has fared less well, continuing to lurch from one crisis
to another. In this respect unrestrained capitalism is faring no better than its house-
trained predecessor. The crises have moved from place to place and taken a variety of
different forms—chronic inflation and then stagflation in the 1970s, rising unemploy-
ment and public debt in the 1980s, rising private debt in the 1990s and 2000s, morphing
once more into a crisis of stagnation and public (as well as private) debt following the
collapse of the debt pyramid in 2007–08—but they persist. Even now economic
growth is sluggish and fragile notwithstanding sustained monetary easing, levels of
debt remain high, real wages remain for the great majority stagnant, inequality continues
to increase, and environmental problems continue to mount.
122
In short, we are living
through an ongoing multifaceted economic, political and social crisis. Increasingly,
recoveries revolve around investment in financial assets (and bubbles) rather than
investment in new plant and equipment. Moreover, policymakers seem to have little
idea what to do. Stuck between a rock and a hard place, they are torn between the con-
tradictory demands of two electorates: the Staatsvolk, their citizenries, demanding social
expenditures on health, education and welfare; and the Marktvolk, the financial markets,
demanding ‘fiscal responsibility’.
123
With this the tensions between capitalism and
democracy have grown. Governments around the world are now faced with a popular
backlash against a range of phenomena associated with ‘globalisation’(immigration,
‘liberal cosmopolitanism’) and many established centrist political parties are struggling.
Partly because of the repeated crises, and partly because of the growing international
competition between capitalisms, in the 1980s and 1990s debate began to emerge about
the best ‘variety’of capitalism and best model of corporate governance. In these debates
the more ‘coordinated’capitalisms and more stakeholder-oriented corporations of con-
tinental Europe and Japan were regularly compared with the more red-blooded, market-
based capitalisms and shareholder-oriented corporations of the US and the UK. Predic-
tably, those on the right tended to try to establish the economic superiority of the latter,
while those on the left sought to establish the economic (as well as social) superiority of
the former—models of capitalism in which, in Polanyian terms, the economy and
markets are ‘embedded’in society.
124
Even using standard economic measures, however, it wasn’t easy to establish which
‘variety’was economically superior. In the 1980s the ‘non-standard’, more intervention-
ist, stakeholder models of capitalism found in places like Germany and Japan seemed to
122 See, for example, the OECD’s latest World Economic Outlook <www.oecd.org/eco/outlook/economic-
outlook/> accessed 28 May 2018.
123 Streeck (n 120). Unable in a world of free capital movement and fiscal competition to fund from taxes the
social expenditures needed and demanded by their electorates, they have become more and more depen-
dent on borrowing.
124 K Polanyi, The Great Transformation (1944, Beacon Press edn 2001). In some of the literature there is a
reluctance to use the word ‘capitalism’. A distinction is instead drawn between ‘co-ordinated market econ-
omies’and ‘liberal market economies’: see W Streeck, ‘Bringing Capitalism Back In’(2009) Max Planck
Institute for the Study of Societies, Discussion Paper 09/8.
24 From Lonrho to BHS
be faring better, leading some business strategists to highlight the deficiencies of the
American, stock-market based version of capitalism. The virtues of the German and
Japanese models with their more ‘patient’capital were extolled and warnings issued
against moving towards ‘a more American-like system’.
125
By the 1990s, however, the
more stakeholder-friendly capitalisms were experiencing slowing growth and fiscal
crises, and by the time New Labour came into office in 1997, it was the neoliberal,
stock-market-oriented model of capitalism that seemed to be enjoying greater economic
success. At around this time a significant number of academics, often supported by
right-leaning think tanks, sought to establish at a theoretical level the economic super-
iority of the Anglo-American, shareholder-oriented model of the corporation, in one
case going so far as to declare the ‘the end of corporate history’.
126
During this period
the Anglo-American neoliberal model of capitalism and the corporation was vigorously
promoted by international agencies.
127
In the UK, New Labour, like many traditional left-leaning parties, sought to ride the
neoliberal-capitalist tiger in search of growth, developing a ‘progressive neoliberalism’
combining an economic programme favouring free capital movement, de-regulation
and labour suppression with a liberal-meritocratic politics of identity and recognition.
128
Significantly, New Labour’s Companies Act 2006, while paying lip service to stakehold-
ing, explicitly enshrined shareholder primacy into English law for the first time, remov-
ing any lingering ambiguity about what was meant by the ‘interests’or ‘success’of ‘the
company’by openly identifying it with the benefit of shareholders.
129
Since then things have changed once more. The great financial crash made it clear
that much of the prosperity brought by neoliberalism was illusory—based on a moun-
tain of unsustainable private debt, asset bubbles, and consumption detached from pro-
ductive activity. Policymakers, seemingly clueless about how to get capitalism
125 See M Porter, ‘Capital Choices: Changing the Way America Invests in Industry’in DH Chew (ed), Studies
in International Corporate Finance and Governance Systems (OUP 1997) 5 at 16; M Albert, Capitalism vs
Capitalism (Four Wall Eight Windows 1993); W Hutton, The State We’re In (Cape 1995); R Dore,
Stock Market Capitalism: Welfare Capitalism (OUP 2000).
126 H Hansmann and R Kraakman, ‘The End of History for Corporate Law’(2001) 89 Georgetown Law Journal
439. In the corporate context, this was manifested in the growing influence of nexus-of-contracts theories
of the corporation and the efficient capital markets hypothesis and in the belief in the virtues of the market
for corporate control.
127 See, for example, the G20/OECD’sPrinciples of Corporate Governance,first published in 1999. For the
latest version, see <www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf> accessed 28 May
2018. More generally, see S Soederberg, The Politics of the New International Financial Architecture (Zed
Books 2004).
128 N Fraser, ‘From Progressive Neoliberalism to Trump—and Beyond’(2017) 1(4) American Affairs <https://
americanaffairsjournal.org/2017/11/progressive-neoliberalism-trump-beyond/> accessed 28 May 2018.
129 Companies Act 2006, s 172. See Johnston (n 99) 1031. Johnston argues that directors previously had con-
siderable discretion in determining what the interests of the company were and that this allowed for some
degree of ‘stakeholding’: see also M Moore, ‘Shareholder Primacy, Labour and the Historic Ambivalence
of UK Company Law’(2016) University of Cambridge Faculty of Law Research Paper, No 40/2016
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2835990> accessed 28 May 2018; L Talbot,
‘Trying to Save the World with Company Law’(2016) 36 Legal Studies 513, 515; A Keay, ‘The Duty to
Promote the Success of the Company: Is It Fit for Purpose?’(2011) 32 The Company Lawyer 1.
King’s Law Journal 25
functioning smoothly again, have ploughed on, further entrenching an unbridled, finan-
cialised model of capitalism and implementing, wherever possible, further cuts to
welfare and social protections (‘austerity’). This has seen the ‘stakeholder capitalisms’
of continental Europe, already weakened by increasingly liberalised financial markets,
further eroded.
130
However, for all the monetary laxity—low interest rates, quantitative
easing and the like—the economic engine continues to splutter, and the victims of neoli-
beralism and globalisation are now expressing their frustrations at the ballot box, under-
mining centrist party politics in populist acts of perceived self-defence. With collective
institutions crumbling, anti-collectivist ideology in the ascendancy, and capital increas-
ingly liberated from social constraint, capitalism has become ever more volatile and self-
undermining, gradually eroding its own social and political conditions of existence.
IS AN ACCEPTABLE CAPITALISM POSSIBLE?
It is in this context that many have found a source of hope in another Polanyian concept,
that of the ‘double movement’, the term Polanyi used to describe the dialectical process
of marketisation and the resistance to it. When markets and market forces extend their
reach and become increasingly unconstrained or ‘dis-embedded’, Polanyi argued, their
operation becomes fundamentally destructive of human beings, nature and society.
131
At this point, he suggested, we can expect there to emerge a counter-movement
aimed at trying to reimpose effective social control over them. In recent years many
have latched on to this idea, anticipating (or hoping for) a backlash against neoliberal-
ism, an attempt to de-commodify certain resources and to ‘re-embed’markets, and to
build an updated social democracy.
These ideas are underlain by the belief that it ispossible to build social democracy on top
of a capitalist economy and very often by the belief that the ‘good’, more humane capitalism
of the post-war period was ‘normal’capitalism. Thus in the 1980s, when Margaret Thatch-
er’s government set about dismantling the post-war settlement, many saw its policies as
ideologically driven aberrations which were flowing against the tide of history. Experience
showed, they believed, that the harsh logic of capitalism could be not only tempered (its
rough edges smoothed by state action) but harnessed to create an ever wealthier and
more compassionate society—an ‘acceptable’capitalism. In Manfred Bienefeld’s words,
the ‘Golden Age’showed that ‘the logic of capital could be reconciled with the human
need for security and leisure and with the social need for stability and equity’.
132
From
this perspective, neoliberal policies were the product of ideological zealotry and wrong-
headed theorising, and it was only a matter of time before ‘normality’returned, history
resumed its natural course and the victorious march of progressive, socially democratic
institutions resumed. This mindset, common amongst those (like myself) who had
130 See W Streeck, Re-Forming Capitalism (OUP 2009) and his subsequent work.
131 Polanyi (n 124). Polanyi focused on the ‘fictitious commodities’of land, labour and money.
132 Bienefeld (n 73) 13.
26 From Lonrho to BHS
grown up intellectually in the post-war ‘golden age’, contributed to a tendency to take those
institutions for granted rather than to see them as political achievements which needed con-
stantly to be defended against pushback from capital.
Increasingly, however, the financialised forms of capitalism and corporate govern-
ance of the early twentieth century (which culminated in the 1930s slump) and of the
modern era (which brought us the great financial crash) have come to look like corpor-
ate capitalism operating ‘normally’. It is now the post-war institutional arrangements
that delivered capitalism with a human face and les trente glorieuses that look aberra-
tional, the exceptional products of a very particular conjuncture. From this perspective,
the dismantling of social democracy looks less like a product of wayward thinking and
much more, as Harvey suggests, like a response to capital’s existential need to escape
social restraint.
133
In the mid-1980s, Bill Wedderburn argued that ‘when an economy,
like the British, is turned geriatric …the maximisation of profit leaves little space for
social experiment’.
134
He might have added, ‘or for social democracy’and removed
the limiting reference to British capitalism.
Liberated from its post-war shackles and with labour disempowered, the pure logic
of capitalism has in recent decades been not merely reasserted but extended and inten-
sified.
135
However, even the decline of working-class power and liberation of finance
has failed to lift the economy out of the doldrums, and there are currently few signs
that it will.
136
On the contrary, as we have seen, the lack of restraint has been a
source of new crises. This suggests that Alvin Hansen may have been right when he
argued that capitalism’s problems were structural and endemic, not merely cyclical.
The claim that capitalism has an inbuilt tendency towards crisis is not, of course,
new. It has long been central to Marxist analyses, which variously attribute it to the
tendency of the rate of profit to fall (an alleged product of the rising organic compo-
sition of capital) and/or to inevitable problems of over-accumulation and under-con-
sumption.
137
Since the 2007–08 crash, these theories have enjoyed something of a
revival. Indeed, some mainstream economists have also begun to see capitalism’spro-
blems as structural. In a speech to the IMF in 2013, Larry Summers revived Hansen’s
133 See David Harvey, Seventeen Contradictions and the End of Capitalism (Oxford University Press, 2014).
134 KW Wedderburn, ‘Trust Corporation and the Worker’(1985) 23 Osgoode Hall Law Journal 203, 249.
135 One question that arises is where does capitalism go now that the various spatial (outward expansion) and
temporal (debt) fixes seem to have been all but exhausted.
136 The prospects for growth in 2018 have improved,but the picture after that remains gloomy: see, for example,
the OECD’s latest World Economic Outlook <www.oecd.org/eco/outlook/economic-outlook/>accessed28
May 2018.
137 See, for example, M Roberts, The Long Depression (Haymarket 2017), who supports theories based around
the tendency of the rate of profit to fall; and D Harvey, The Enigma of Capital (Profile 2011) 28–32, 45,
who sees the causes of crisis as changing over time, but clearly sees the current one as arising out of a
‘capital surplus absorption problem’and ‘an excess or overaccumulation of capital’. Marxist analyses
all tend to see the extreme ‘financialisation’of recent decades as a sign not of a healthy economy but
of an ailing one—a response to a lack of opportunities for profitable investment in the productive
sector—and a source of new forms of crisis and breakdown.
King’s Law Journal 27
ideas to try to account for the coexistence of low inflation, low interest rates and slow
growth.
138
Lamenting the chronic shortage of demand and profitable investment
opportunities, and the apparent lack of an interest rate capable of producing healthy
growth, Summers suggested that ‘secular stagnation’was the defining economic
problem of our time. Writing in 2017, he reiterated this.
139
Certainly, the idea that capit-
alism, whether restrained or not, suffers from a structural tendency towards crisis would
help to explain the similarities in the general direction of socio-economic travel across
national boundaries and different varieties of capitalism.
140
It also helps to explain why
policymakers everywhere are findingitsohardtogetitfunctioning‘properly’again.
From this perspective, the search for an ‘acceptable’capitalism of the socially demo-
cratic type found in the post-war period is likely to prove forlorn: the problem is capit-
alism tout court rather than a particular model of capitalism. Ted Heath may, therefore,
have shown uncharacteristic foresight when he omitted the ‘t’in ‘facet’. Facet implied
that the traits revealed in the Lonrho case were just one unfortunate aspect of a multi-
faceted gem, and potentially a relatively minor one at that. ‘Face’, on the other hand,
suggested that those traits were a significant aspect of the whole—albeit, perhaps,
ones hidden behind a more attractive mask.
141
138 In fact, Hansen’s ideas about secular stagnation,which were quickly forgotten when war sparked an economic
recovery, were first resurrected in the 1960s by the Marxist economist (and son of a leading Wall Street
banker), Paul Sweezy. Sweezy argued that a tendency towards stagnation was endemic to ‘monopoly capital-
ism’, a capitalism dominated by large oligopolistic and monopolistic corporations. ‘The normal state of the
monopoly capitalist economy’, he argued with Paul Baran, ‘is stagnation’.Inhisview,thistendencyhad
been present from as early as the late nineteenth century corporate revolution but had been tempered by
various countervailingforces, most notablytwo world wars which destroyed capital andgenerated new invest-
ment opportunities: Baran and Sweezy (n 34) 108;see also P Sweezy, ‘Why Stagnation?’(October 2004) 56(5)
Monthly Review <https://monthlyreview.org/2004/10/01/why-stagnation/> accessed 28 May 2018. Sweezy
was also one of the first commentators to make the link between stagnation and the financial explosion.
139 Summers made his first speech on this in November 2013: see <http://uk.businessinsider.com/larry-
summers-imf-speech-on-the-zero-lower-bound-2013-11> accessed 28 May 2018. He followed it up in
2015 with ‘Reflections on Secular Stagnation’<http://larrysummers.com/2015/02/25/reflections-on-
secular-stagnation/> accessed 28 May 2018. Summers and others have also suggested (like Sweezy) that
the central force behind stagnation is monopoly. See, for example, P Krugman, ‘Monopoly Capitalism
Is Killing US Economy’Irish Times (19 April 2016) <www.irishtimes.com/business/economy/paul-
krugman-monopoly-capitalism-is-killing-us-economy-1.2615956> accessed 28 May 2018. Larry
Summers, ‘Secular Stagnation even truer today’, Wall Street Journal (25 May 2017) <http://
larrysummers.com/2017/06/01/secular-stagnation-even-truer-today/> accessed 29 May 2018.
140 W Streeck, How Will Capitalism End? (Verso 2016) ch 10. Streeck has concluded that capitalism is dying,
buried by capital itself, not the working class, arguing that its demise won’t be forestalled by the absence of
a replacement: ‘Before capitalism will go to hell, then, it will for the foreseeable future hang in limbo, dead
or about to die from an overdose of itself but still very much around, as nobody will have the power to
move its decaying body out of the way’36.
141 See Campbell (n 3) 528.
28 From Lonrho to BHS
THE CORPORATE CONTEXT: MAPPING A WAY FORWARD
What, then, is to be done? What follows is an attempt to map the general direction in
which we should seek to move, rather than a set of detailed, concrete policy proposals.
We need, first, to recognise that a course which tries to humanise the capitalist
market economy in anything resembling its current form is very unlikely to succeed.
For example, greater ‘regulation’in the traditional sense of the word, in which certain
arrangements and processes are left untouched and treated as though they are unalter-
able givens with a pre-regulatory existence, is unlikely to work.
142
The economic and
moral logic and culture of contemporary financialised capitalism is such that corpor-
ations and corporate managers must be expected to endeavour to evade rules or just
plain break them. BHS was an extreme example of a wider and increasingly entrenched
phenomenon.
143
The financial sector, the philosopher Alasdair MacIntyre argues, is a
sphere marked by ‘bad character’, the skills required to be a good ‘money trader’
being inimical to the virtues: ‘Teaching ethics to traders’, he suggests, ‘is as pointless
as reading Aristotle to your dog’.
144
In short, then, something much more radical is required. We need changes that will
alter in significant ways the operating logic of our socio-economic system. An ‘accepta-
ble’capitalism would, therefore, be significantly less of a capitalism or, indeed, some-
thing substantially other than capitalism. The goal must be not merely to try to
regulate corporations and markets but to construct arrangements which generate and
operate according to a different logic. This would require a substantial amount of de-pri-
vatisation,
145
de-commodification, experimentation with alternative organisational
forms and arrangements, and a democratisation of economic life. This will require
radical reform on multiple fronts. The political obstacles will, of course, be considerable
and may be insurmountable, but the alternative is likely to be, as Streeck argues, a capit-
alism that slowly disintegrates before our eyes despite the absence of an alternative to
take its place.
146
What might more radical reform entail in the corporate context? It is important to
remember that although ‘capitalism [has] an inner logic …, it is also a constructed
142 See Ireland (n 14) 85.
143 The most recent example has been provided by Carillion. See Will Hutton, ‘Capitalism’s New Crisis’The
Observer (21 January 2018).
144 J Cornwell, ‘MacIntyre on Money’Prospect (October 2010) <www.prospectmagazine.co.uk/magazine/
alasdair-macintyre-on-money> accessed 28 May 2018. The ethics of the financial sector were vividly illus-
trated by the behaviour of Goldman Sachs in the run up to the financial crash, in which they bundled
together toxic mortgages into complex financial instruments, persuaded credit rating agencies to label
them AAA, sold them to investors, and then bet against them in the market. See M Pagano, ‘Goldman
bet against securities it sold to clients’Independent (25 April 2010. <https://www.independent.co.uk/
news/business/news/goldman-bet-against-securities-it-sold-to-clients-1953406.html> accessed 29 May
2018. Goldman's own (equally damning account) can be found at <http://www.documentcloud.org/
documents/724925-goldman-releases-internal-e-mails.html> accessed 29 May 2018.
145 See Hutton (n 143).
146 See Streeck (n 140).
King’s Law Journal 29
system, and this means that the logic will unfold in ways that are shaped by the nature of
those constructions’.
147
We should also remember that these constructions are, in sig-
nificant part, legal in nature. Recognition of this underlay the work of the early progress-
ive legal realist, Robert Lee Hale, and has more recently animated the work of the so-
called ‘legal institutionalists’.
148
It also underlay the work of EP Thompson, for whom
the distinctive economic and moral ‘logic of process’of capitalism was derived not
from human nature but from its distinctive property relations, hence the importance
he attached to law in his work.
149
Moreover, as Thompson recognised, despite its
‘inner logic’, capitalism can exist and has existed in many different forms. While the
‘number of variants’is potentially ‘infinite’, he suggested, it ‘is infinite only within the
categories of social species. Just as …there may be any number of permutations of
breeds of dogs, and of mongrel cross-breeds, all dogs are doggy (they smell, bark,
fawn over humans, etc.), so all capitalisms remain capitalist …’.
150
Recent decades
have seen multiple (often micro) institutional changes—many of them legal in nature
and many of them having a direct impact on the rights and power of labour and
capital. Collectively, these changes have not only seen the economic and moral logic
of capitalism reasserted, extended and intensified, they have subtly, and sometimes
not so subtly, altered that logic. The result has been the emergence of a new, highly
financialised (neoliberal) capitalism.
In this context, it is worth remembering that a tendency towards a greater concen-
tration and centralisation of capital—and towards financialisation—is inherent in the
logic of capitalism. Competition encourages technological advances which often
demand larger-scale production and larger firms; it also encourages firms to merge
with other firms even in the absence of significant scale economies, either to eliminate
rivals or to provide investment outlets for surplus capital.
151
Both factors contributed to
the rise of the joint stock corporation and rapid expansion of the credit system in the
later nineteenth and early twentieth centuries. Crucially, the interest of the great
majority of the shareholders in these corporations was (and is) purely financial. They
are interested not in production or the firms in which they have invested, but in financial
returns and capital values.
152
As commentators like Marx and Veblen pointed out in the
late nineteenth and early twentieth centuries, a tendency towards financialisation was,
therefore, inherent in these developments. Predictably, then, this period saw the rise
of new forms of property and property relations, more financialised firms and a more
147 Bienefeld (n 73) 21.
148 On Hale, see Ireland (n 14). On ‘legal institutionalism’, see S Deakin and others, ‘Legal Institutionalism:
Capitalism and the Constitutive Role of Law’(2017) 45 Journal of Comparative Economics 188.
149 From this perspective, the need for unending economic growth is derived not from human nature but
from capital’s existential need to keep expanding. On Thompson’s idea of ‘logic of process’, see Ireland
(n 20).
150 EP Thompson, ‘The Long Revolution’(n 20) 34 at 38.
151 See L Hannah, The Rise of the Corporate Economy (Methuen 1976).
152 See Ireland (n 68).
30 From Lonrho to BHS
financialised capitalism, albeit one in which industrial capital still remained broadly
dominant.
153
It should not be forgotten, however, that the very same commentators also saw in these
developments the possibility of a future characterised by more ‘socialised’corporations and
amore‘socialised’capitalism (and, in some cases, something other than capitalism). This
was because of the nature of shareholding and property in these corporations. Corporate
shareholders owned revenue rights (shares), not rights to tangible assets (these were now
owned by the corporation as a separate legal person), and they had handed operational
power over to professional managers. They looked and acted more like creditors than
owners, and when shares became fully paid-up, they were rendered functionless. As we
have seen, in the middle decades of the twentieth century, as they became more dispersed,
their ability to control managers was also diminished, raising further questions about the
legitimacy of their residual proprietary rights. Were they not better seen as ‘owed’rather
than ‘owning’? And shouldn’t their corporate rights be adjusted accordingly?
154
In the ‘golden’post-war years, with managers subject to a range of pressures from
organised labour, the state and ‘public opinion’, it was a ‘socialised’vision of the
future of capitalism that seemed to be in the process of realisation. However, socialisa-
tion was not, as some advocated, translated into significant changes to corporate prop-
erty rights structures. Indeed, the fact that change had been achieved without this
(mis)led many to believe that socialisation was possible without attenuating shareholder
proprietary rights and reallocating them, in whole or in part, to employees and other
stakeholders. All that was needed to cement ‘stakeholder corporations’, it seemed,
were a few tweaks to directors’duties and the development of professional managers
with the right values and culture. This mindset was summed up by one of the section
titles in Crosland’sThe Future of Socialism:‘The Growing Irrelevance of the Ownership
of the Means of Production’.
155
It also contributed (along with resistance from many
within the labour movement) to the petering out, in the 1970s, of proposals to introduce
industrial democracy and worker board-level participation in management.
156
With hindsight, we can see that the failure to effect changes to corporate rights struc-
tures was a historic mistake. The survival, undiluted and intact, of the residual proprie-
tary rights of the rentier shareholder has been one of the key legal foundations for the
growing financialisation of corporate governance and radical reassertion and intensifica-
tion of the logic of capitalism. Some commentators have implicitly recognised this.
Thus, Colin Mayer has called for the traditional emphasis on ‘incentives, ownership
153 See Sweezy (n 115).
154 See P Ireland, ‘Efficiency or Power? The Rise of the Shareholder-oriented Joint-stock Corporation’Indiana
Journal of Global Legal Studies (forthcoming in 2018).
155 Crosland, Future of Socialism (n 78) 35.
156 B Clift, A Gamble and M Harris, ‘The Labour Party and the Company’in A Gamble, J Kelly and J Par-
kinson (eds), The Political Economy of the Company (Hart 2000) 51. In the UK, all that emerged was
an ineffectual duty for directors to consider the interests of employees: see text accompanying (n 66)
above.
King’s Law Journal 31
and control’to be supplemented with an emphasis on ‘obligations, responsibilities and
commitment’, proposing inter alia that voting rights be withheld from shareholders until
they have demonstrated their ‘ownership’credentials by holding their shares for a
minimum period.
157
It would be churlish not to support measures like this, aimed at
getting shareholders to act more like ‘proper’, active, committed owners, and managers
to act more like ‘stewards’. We need to recognise, however, that the great majority of
corporate shareholding is passive and financially motivated, and that the increasing
mediation of share ownership by institutions acting as the ‘general managers’of ‘all
lenders of money’and operating in global capital markets has intensified this financial
focus. Trying to get no-liability, no-responsibility, rentier shareholders and their repre-
sentatives to act more like proper owners is rather like trying to get cats to bark.
Indeed, reforms which propose to solve our corporate governance problems by
further empowering shareholders and encouraging them to be more active and to act
more like proper owners are likely to exacerbate those problems, not solve them.
158
Although proposals such as Mayer’s for time-dependent voting rights are, then, steps in
the right direction, they don’t go far enough. The power of rentier investors—of
finance—needs to be diminished and provision made for much greater ‘stakeholder’
involvement in corporate governance. What is needed is, as John Parkinson said,
writing of the ‘pluralist’approach to governance rejected by the Company Law Review,
is ‘thorough-going reform aimed at altering companies’decision-making structures and
the location of ultimate control’.
159
In short, we need to resurrect the potential radicalism
of the mid-twentieth century, and to make, in Gower’swords,‘substantial modifications
[to] the legal framework of companies’which recognise that enterprises of this sort ‘should
be run for and on behalf of the public as a whole and not merely for the benefitof…the
shareholders’.
160
We need at the same time to foster experimentation with alternative
organisational forms: social enterprises, workers co-operatives, B Corps, community inter-
est companies, mission-led businesses and the like.
161
Put simply, ownership does matter,
though we need to recognise that the range of institutional possibility is much greater than
that between full liberal ownership by private individuals and full liberal ownership by the
state.
162
The rights in the ownership bundle can be divided and allocated in many different
ways, and rights structures can vary between resources and contexts.
163
157 C Mayer, Firm Commitment (OUP 2013) 6, 246–48. This underpins his proposed solution: ‘trust
companies’.
158 See J-P Robe, ‘The Shareholders Rights Directive II: The Wrong Cure for a Deadly Disease’(2016) 17 ERA
Forum 45. See also L Talbot, ‘Why Shareholders Shouldn’t Vote’(2013) 76 Modern Law Review 791.
159 J Parkinson, ‘Inclusive Company Law’in J de Lacy, Reform of UK Company Law (Routledge-Cavendish
2002) 43 at 50.
160 Gower, Principles (2nd edn, 1957) (n 55) 231.
161 See Boeger and Villiers (n 119).
162 R Unger, The Left Alternative (Verso 2005). See also P Ireland and G Meng, ‘Post-Capitalist Property’
(2017) 46 Economy and Society 369.
163 AM Honore, ‘Ownership’in AG Guest (ed), Oxford Essays in Jurisprudence (OUP 1961) 107; see also
Ireland and Meng (n 162).
32 From Lonrho to BHS
Changing corporate proprietary structures will not, however, in and of itself change
very much if enterprise managers (whoever they are and whatever their duties) remain
subject to the intense financial market pressures which currently prevail. Financial
power needs to be curbed and the financial system brought under much greater collec-
tive control. In The General Theory, Keynes wrote that speculators ‘may do no harm as
bubbles on a sea of enterprise’but ‘the position becomes serious when enterprise
becomes the bubble on a sea of speculation. When the capital development of a
country becomes a by-product of the activities of a casino, the job is likely to be ill-
done’.
164
In Keynes’view, ‘the investment policy’which was most ‘socially advan-
tageous’was not necessarily that which was most profitable. This led him to conclude
that the state, which was better placed to take a longer view and to take account of
the general social interest, should take greater responsibility for ‘directly organising
investment’. He therefore advocated a ‘somewhat comprehensive socialisation of invest-
ment’to channel resources away from speculation towards productive activity.
165
An
opportunity to move in this direction was lost in the crash of 2007–08, when the
losses of the banks were socialised but not the banks themselves. If, or, as seems more
likely, when, we are confronted with further recessions/crashes,
166
we should not
spurn similar opportunities. Keynes hoped that these ‘necessary measures of socializa-
tion’would, by ‘leashing capitalism’,
167
save it. But events have not proceeded as
Keynes hoped and envisaged. We have not seen the ‘euthanasia of the rentier’and
with it ‘the euthanasia of the cumulative oppressive power of the capitalist to exploit
the scarcity value of capital’. Nor have we seen his hoped-for harnessing of ‘the intelli-
gence and determination of the executive skill of the financier [and] entrepreneur …to
the service of the community on reasonable terms’.
168
On the contrary, Heath’s facet has
become the norm. It is time, perhaps, to recognise that an ‘acceptable’capitalism may be
a chimera.
DISCLOSURE STATEMENT
No potential conflict of interest was reported by the author.
164 JM Keynes, The General Theory of Employment, Interest and Money (1936) ch 12; reprinted in E Johnson
and D Moggridge (eds), The Collected Writings of John Maynard Keynes (Cambridge University Press 1973)
vol 7.
165 Keynes (n 164) chs 12 and 24. See also H Davis, ‘Keynes on the Socialization of Investment’(1992) 19
International Journal of Social Economics 150, 157, 164 and 378.
166 See C Aksan and J Bailes, ‘Are We Heading for Another Economic Crash?’(Verso Blog, 17 January 2018)
<www.versobooks.com/blogs/3568-are-we-heading-for-another-economic-crash> accessed 28 May 2018.
167 R Pollin, ‘The Resurrection of the Rentier’(2007) 46 (July–August) New Left Review 140, 142, reviewing A
Glyn, Capitalism Unleashed (OUP 2006).
168 Keynes (n 164), 376–77.
King’s Law Journal 33
