We are currently faced with unprecedented crises of both the state and the market. These crises have a common root – a failure of corporate governance – and they share a single sin: using public goods for private ends.
This failure resulted from insufficient accountability both on the boards of the banks and in the Parliamentary system, a failure to ensure appropriate and just decisions were made. In the case of banks such as the Royal Bank of Scotland neither the chief executive nor the non-executive members of the board exercised restraint, awarding over-inflated salary rises to themselves, and encouraging their staff to take ever increasing risks with other people’s money. The bankers lost sight of what fiduciary responsibility really meant and conflated their private interests with the general interests of the companies in their care.
In the case of the MPs, the sense that public service might entail sacrifice seems to have evaporated. Putting to one side the cases of direct fraud, an ethos prevailed that public service should cost nothing: every last eyeliner and light bulb needed to be recompensed.
How were the MPs and bankers able to get away with this for so long? It would be easy to blame it all on self-regulation. The banks and the MPs both enjoyed ‘light touch’ regulation, which seemed to translate as ‘do what you want, how you want to.’ But this would not be to address the root of the problem and any attempt at reform that simply imposes more regulation or some clunky system of managerial procedures will constitute a reprehensible failure of constitutional imagination. We must instead return to the ancient principle that founded Parliament, summarised in the Roman law, Quod omnes similiter tangit ab omnibus comprobetur (Justinian’s Code VI.59.5.2). In short, what touches all ought to be tested by all.
In practice this meant that all those who have legal rights at stake in a decision are entitled to be present at or at the very least to be consulted in the decision. The principle was particularly applied to taxpayers. It is this principle that formed the basis of both Houses of Parliament. From the thirteenth century onwards, when the monarch needed to raise money he gathered both the aristocracy, in what became the House of Lords, and the gentry and freehold commoners, in what became the House of Commons, to consult them about the use to which their money should be put. Just decisions, particularly in relation to the use of money for things that affected everyone, required the representation of all the relevant interests in the decision making process. The modern form of our Parliamentary system lies in a fierce debate in the seventeenth century, mainly led by Puritans reacting against corruption in the body politic, which radicalised the principle into a demand that what touched all required the consent of all. It was this same principle that lay behind the rallying cry of the American Revolution: ‘no taxation without representation.’
Proper corporate reform needs to return to this principle. There is a need for new and more forceful regulation of the financial system, but regulation alone is insufficient. What is needed to prevent the banks returning to business as usual is a fundamental reform of corporate governance involving the representation of different interests at board level.
One can imagine decisions about the proper use of pension funds or the pension awards of senior executives would be rather different if those representing the interests of ordinary workers were a central part of the decision making process, something that is standard practice in many companies in Germany.
Beyond the genuine representation of different stakeholders at board level, there needs to be representation of those who bear the burden of decisions made. It is not acceptable that bankers reap the rewards but socialise the costs. So, more radically, the interests of those the banks represent should have a say in the deliberation process. For example, mortgage holders should be able to vote a representative on to the board of a bank. In short, some system of democratic representation needs to be introduced into corporate governance to ensure that decisions about our money are made for the good of all and not in the interests of a self-selecting few. Such a process would bring a reality check to the fantasy world of high finance.
Proper reform of the House of Commons will fail if it is simply handed over to some external regulations committee. The Commons needs to be an autonomous, self-governing body so that it is at liberty to serve the real interests of the whole people rather than find itself constrained by some legalistic principle. In others words, we cannot sacrifice politics on the altar of procedure.
Instead, the representation of different interests, not just that of MPs, needs to be built into the system of expenses and allowances. MPs have a real and necessary interest in being able to conduct the business of representing their constituencies. They require stipendiary measure to free them to do so. However, they are not the best judges of what is in the interests of all and what is simply in their self-interest.
One possible way forward is to include administration of MPs expenses as part of a special committee of the House of Lords, the members of which are constituted not by ex-MPs and party hacks but representatives appointed to the Lords from different corporate interests: the legal and medical professions, the universities, the media, etc. This would be a genuine council of peers able to evaluate what was an appropriate claim on the public purse for services for the common good.
Whatever the merits of the above proposals, what is clear is that the ancient principle that what touches all should be tested by all deserves to be a foundation stone of future constitutional and corporate reform.
Luke Bretherton is Senior Lecture in Theology & Politics, King’s College London and Convenor of the Faith & Public Policy Forum.
