Capitalism: moral as well as legal?

Blind justice

Photo copyright nyghtowl

Listening to File on Four the other day, I found myself mildly appalled by a comment made by Kevin McCullough from UK Coal Production Ltd. In 2009, UK Coalmining Ltd, part of the UK Coal group, was taken to court by the HSE for failing to act on warnings about safety. The issue that their train drivers had warned about ended up causing an accident in which a miner died, and UK Coalmining Ltd pleaded guilty to breaching the Health and Safety at Work Act . The court imposed a fine of £125,000 and ordered UK Coalmining Ltd to pay the HSE’s costs of £175,000.

Unfortunately for the HSE (and therefore for us, the taxpayers), UK Coal restructured its business shortly before the fine was imposed (for financial reasons rather than specifically because of this case), which meant that UK Coalmining Ltd no longer had any assets, and therefore did not have to pay either the fine or the costs. Now you see it, now you don’t. Magic.

The interviewer from File on Four asked Kevin McCullough if he felt ok with this state of affairs. He replied:

“The most important thing for me as a director, and all my board share this, is that what matters frankly more is that the individuals involved and the families involved get an appropriate level of compensation. And that happened.”

The interviewer asked him again if he felt happy that the taxpayer would end up footing the bill for the costs of taking the company to court. The reply was:

“Well I think you’ll find that the taxpayer foots the bill for a hell of a lot in the UK, and whilst it’s unfortunate that the company was restructured and might not be able to actually meet that fine there are things of far greater consequence that they have to pay beyond that.“

I had to go back to the programme and make sure I got that quote exactly right, because I found this attitude quite staggering. Obviously paying compensation to the families is probably more important, but surely the company should have had to pay both the compensation AND fines and court costs. When did paying your dues to society, and not burdening the taxpayer with £175,000 of court fees, become so totally unimportant?

Legally, UK Coalmining Ltd had done nothing wrong.  It simply arranged its affairs so that all its assets had been transferred elsewhere, and was therefore, in the eyes of the law, unable to pay. This is, by and large, the approach that large companies such as Amazon and Starbucks have been accused of taking to their tax liabilities: legally, they did nothing wrong, and yet they paid little or no tax in a market which seems, by all accounts, to have been highly lucrative for them. The public outcry that happened when this state of affairs came to light was because it offended our sense of morality and justice, even though the companies were operating within the law.

The relationship between morality, justice and the law is a complex one and has been debated and discussed at length by legal theorists. This Royal Society paper by Robert Hinde discusses where the law comes from, and he argues that the law is based on some basic principles about human nature and society – such as looking after one’s own interests, co-operation, caring for children, for example. However he also points out that the law is shaped and evolves according to a society’s experiences, so it is not just about our fundamental sense of natural justice. Furthermore, he points to an interesting difference in function between laws and morality: “In general, legal systems have been formulated to deal with the more extreme infringements of moral codes. Morality prescribes how people should behave; the law is concerned with how they should not.”

According to this definition, we should all, as individuals and as businesses, be striving to meet our moral obligations, not just staying within the law. Google’s much-quoted motto ‘Don’t be Evil’ actually only prevents it from taking negative actions: how much better would it be if it was ‘Be a positive force in the world’ or ‘Do something good every day’?

So is it too much to expect corporations to behave in a moral way, as well as fulfilling their legal obligations? Last year, Will Hutton wrote a fantastic essay for the Work Foundation on whether our economy needs a new kind of capitalism. In it, he talks about this decoupling of morals and regulation, saying that “too many business leaders, blinded by the lure of their remuneration exploding along with the unsustainable growth in their profits, lost touch with the moral purpose and societal responsibility of their organisations.”

It might seem odd to today’s ears to think of profit-making enterprises having a moral purpose and responsibility, so used are we to the idea that companies’ only responsibility is to make money for their shareholders. If you look at the official responsibilities of a Director of a Limited Company, none of the them specify any kind of moral leadership or ethical behaviour. But as Will Hutton points out: “Capitalism is a subtle co-existence of apparently inconsistent values; capitalists are stewards of their assets even while they relentlessly pursue profit. They rely on a vigorous public realm that nurtures science, education and infrastructure even while they are go-getting individualists. They need flexible adaptable workforces; but they also need committed, loyal and trained workforces. In the run-up to 2008, the social and public values of this equation, paradoxically essential to a strong capitalism, were systematically torched.”

There are, of course, examples of companies run with a strong moral compass. In the late 19th century Cadbury’s was famous for giving its workers far more than they could expect according to the labour laws at the time. They were housed in well designed cottages in Bournville, with space for sport and leisure, swimming pools, a kitchen in the factory, heated dressing rooms, and discounted train fares for those who lived further afield. It wasn’t the law that compelled the Cadbury brothers to do this, but a combination of a strong moral and religious compass, and an understanding that treating workers well would generally result in happier, more productive and loyal workers. This is what Will Hutton is talking about when he talks about the ‘social and public values of the equation’.

These days many of our large corporations also give back, with charitable foundations, sponsorships and support for all sorts of aid programmes. You can also read about their environmental credentials and ethical supply chain management in their CSR reports, although that doesn’t seem to stop sweatshops from existing or workers in China committing suicide in inhumane working conditions. But instead of doing business coldly on the one hand, and then putting a sticking plaster over some of the damage with the other, wouldn’t it be better if businesses were run according to what was right at every level of activity, rather than what they can get away with? If the furore over corporation tax has shown anything, it is that the public would like their corporations to be good, rather than just legal. In today’s globalised, complex world, it is hard to see clearly just how well large corporations are behaving and hold them to account, so we need to build a culture where behaving ethically and morally is encouraged and rewarded. Once again, Will Hutton says it far better than I can:

“The task is not to attack business indiscriminately, but instead to ensure that it is informed by a better moral compass, stronger checks and balances and a new web of institutions supportive of risk-taking, innovation and investment. We need to rediscover the role of the social and the public in the equation. We need Good Capitalism.”

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