Privatization Issues in the UK - Essay Example

"We must do what we can to encourage corporate responsibility. But we cannot leave companies to regulate themselves globally, any more than we can do in our own national economies." - Jack Straw MP, Secretary of State for Foreign and Commonwealth Affairs, September 2001 Privatisation in UK was intended to result into fiscal benefits and equity-enhancing effects, reduction of inequalities in access to goods and services by limiting opportunities for favouritism, corruption and differential fixing of rents. However, there are concerns privatisation has hurt the socio-economic welfare of the majority since the problem of applying UK company law has become problematical with the whole privatisation process. Privatisation in the UK has been part of a broader strategy to increase the role of markets in former state industries, to change the means of public control (by substituting arms-length regulation for more direct political control) and to modify incentives to economic efficiency. This process has taken more than fifteen years so far, and will take longer still to come to come to full fruition. The Government's approach to Company Law Reform has been dominated by a desire to please sections of the business lobby. This has undermined attempts to deliver corporate responsibility. In November 2005, Gordon Brown announced his intention to scrap the Operating and Financial Review (OFR), which would have obliged companies to report on their social and environmental performance. It is thus inevitable to take into consideration the underlying system of national (corporate) laws that regulates this field or that suffers from proper implementation, reform or application. The law is directly related to the performance of management in the process of directing and controlling the company as a means of maximizing the residuals and the value of the company for its shareholders, including all the interested parties under the stakeholder concept: workers; management; buyers; suppliers; creditors; local government; and so forth. The key to this obviously lies in the way the company is conducted, as well as the capacity of its managers to keep a continuity of success, regardless of the economic circumstances and the problems of the company itself. Stronger government oversight is necessary. Accounting reports have to give a clear picture on the company's operation as well as of its financial structure. Application of company law may give rise to conflicts of interest between a company and the government law. The Trade Justice Movement and the Corporate Responsibility (CORE) coalition are calling on the Government to ensure new laws, which apply to UK firms hold company directors to account for the impact of their activities on communities, workers and the environment in Britain and overseas. 'Disclosure', 'transparency' and 'shareholder value' make up the framework of shareholding governance nowadays and are amongst the most common words in company law while treating with privatisation symptoms and while seeking ways to combat its ills. These institutions look "ideally" towards improved corporate governance standards (which is selfish), in particular on facilitating developing markets to re-establish competition (again personal gain), gain investors' confidence (for company profit) and promote national economical growth (where they seldom allow intervention, which poses the problem of applying proper company law). Trying to seek easier and cheaper alternatives to counter competition companies are going haywire with their social responsibility that seldom adhere to UK company law even if it exists or find ways to seek loopholes (since they remain unaccountable). Like companies, producing palm oil in the UK is actually obtaining by driving rapid rainforest destruction in South East Asia. Over 500 UK companies have been trading in palm oil, most for more than a decade now without any UK company law to curb them. Yet despite high profile public campaigns about its impacts, virtually none of these companies can prove that their palm oil is obtained from non-destructive sources. Although the NCP Act allows for no political intervention in the processes leading to the conclusion of the privatisation of an enterprise, there is the requirement under Section 20 Sub section 4 of the NCP Act 2002 that every proposal for divestiture approved by the Commission shall (before implementation) be laid before Parliament for a period of twenty-one days. Since, protracted Legislative process tend to slow down speed, with which transactions entailing new statutory instruments can be implemented thereby increasing the problem of effective implementation. Additionally some of the privatisation proposals may need legislative enactments, which could take time and may affect the planned speed of activities for privatised firms. While some figures in Government appear to want to heed loud complaints from sections of the business lobby, ICM polling for the CORE coalition and the Trade Justice Movement shows that voters back new, enforceable rules on companies. For example, 89% of voters believe the Government should go ahead with the plan to introduce OFR-style reporting, disagreeing with Gordon Brown's announcement to scrap these reports at the CBI conference. Consequently, privatisation entails "a transformation of the property right regime in the sense that rights of control are reallocated. Rights of control, which more or less have been dispersed in the public decision making structure, has now become concentrated on a single private person, private organization or a collective of shareholders partially controlling such a private organization." (Scheider and Jager, 2001: 7)1. Thus, privatisation has many faces and thus is hard to deal with in a single universal space. The government should be busy promoting new company laws to help tackling the problem of such vast process of privatisation. Compliance is not easily observed where the law is often uncertain or contradictory and not exhaustive but only categorical (presenting many loopholes). Likewise, vague laws on establishing proper title to privatized assets often lead to post-privatization litigation. The Company Law Review that presented the first comprehensive review of UK company law in 40 years showed that it is a vital opportunity for government to make businesses more accountable for their impacts on society and the environment. However, many of the group is recommended amendments to the law will focus on improving governance - both through directors' duties and company reporting and audit. Short- and long-term consequences of their operations and decisions cannot always be taken into account within the same law while keeping into account the company's relationships with stakeholders; their need to maintain a reputation for high standards of business conduct; and impact of their actions on the community and the environment. Company reporting and audit based on disclosure requirements that include a mandatory operating and financial review (OFR) within their annual reports and accounts, provide a review of the business, its performance, plans and prospects. It also contains that information which the directors, "in good faith judge necessary" for an understanding of the business, such as relationships with employees, suppliers and customers, environmental and community impact; and corporate governance and risk management. In addition, the report recommends inclusion of such factors that affect future performance also. They are risks and opportunities associated with health and safety, environmental liabilities, and training programme. Again such "external" materials (that may be published publicly) like policies and practices on employment, disability and non-discrimination policies, compliance with international labour conventions and anti-discrimination laws, social and community programme, ethical and environmental issues and their impact on the business, international trade and human rights issues and political and charitable donations must be exposed. The review thus becomes an integral part of the annual report. These proposed revisions to company law would appear to mark a significant advance in mandatory disclosure requirements for the UK Company laws. However, the review has attracted criticism from those who believe the OFR's actual implementation will stifle any potential advances because some important reporting areas are left to the directors' discretion. While such views on this subject may or may not influence amendment of UK Company Law or its application, their discussion provides a good opportunity for the public to raise concern at a greater level. What such discussions on such review will mean for the UK company law effectiveness generally will become evident in what good corporate governance takes into account. In this sense, UK company law application means management, power, duty and impact, accountability and supervision. Relevant to the post-privatisation experiences of this group of countries, what comes, as an unambiguous conclusion nowadays is that privatisation by itself does not resolve the problem of corporate governance and managerial motivation towards improved results. In that way, previous experiences have demonstrated that the weak performance of countries company law hardly held the interest of the privatised firms stability and economic growth or knowledge of the company itself. Management and managers, particularly those in large corporations, are often connected with the financial institutions, legal advisers and auditors; consequently, fraud and scandals of huge dimensions should come as no surprise2. There is a notable lack of transparency within corporate governance and its control, remains an abstract and vague concept is usually seen as an attempt to deal with such problems resulting from a separation of ownership and control. The problem with applying UK company law to the privatisation process has brought up all such problematic issues for and against corporate governance, which has evaded any concrete definition. Works Cited 1. Schneider, Volker and Alexander Jager. 2001. "The Privatisation of Infrastructure in the Theory of the State: An Empirical Overview and a Discussion of Competing Theoretical Explanations." Being a paper prepared for presentation at the workshop on the Regulatory Reform at the 29th Joint Sessions of Workshops (ECPR), 6 - 11 April 2001 in Grenoble, France. P. 6. 2. Enthoven, A 'The Enron Crisis: Some Lessons for Transition Economies' Transition January-February. Read More