The Scum That Runs Our Corporations and Banks are still ripping us off. Poly Toynbee uses Debenhams AGM as an example of what’s so wrong.

Come and see one of the rotten boroughs of our times – a public company’s AGM. It was the day for Debenhams to meet its shareholders, present its accounts, re-elect directors and fix their remuneration. If you harbour the illusion that much has changed in corporate culture, it hasn’t. Or at least not yet.

Debenhams is a useful paradigm for much that went wrong. Private equity gobbled it up in 2003. Its new owners sold off its property, took £1bn out of the business and put it back on the market with a £1bn debt round its neck. At the height of financial madness, institutional funds were suckered into buying back the now debt-laden company at a higher price than the marauders paid in the first place. It has not done too well.

Pirc, the independent advisers on corporate governance, warned shareholders to vote down the board’s impudent pay package: the option to take a bonus of up to 400% with lower targets, because the old ones had become unattainable. This bizarre reasoning is now common: bonuses are useless incentives if the goal is unreachable, so move the goalposts. Only inert shareholders and pension funds lose out. Debenhams directors’ contracts give them a now frowned-on two-year pay and perks parachute if they are forced out.

So what happened? Absolutely nothing. About 10 small shareholders, all rather elderly, turned up in the small basement room in Holborn to get an annual look at their directors. One old man in a faded blazer came up for the day from Hastings, but like the rest asked no questions and obligingly voted for every motion. The real money was in the proxy votes of institutional shareholders: a screen showed they voted 98% and 99% for everything, not a word about unseemly remuneration.

The 12 directors rose one by one as their CVs were read out; virtually all were chairs and directors of other big companies – Somerfield, Capita, Rentokil. Adam Crozier gets monumental pay from Royal Mail, but it is still in dire straits. Why would they query the Debenhams CEO earning almost £1m, up 19% on last year? Why would any of the unseen high-paid managers of investment funds question it either? The directors smiled with smug benevolence at this rum assembly of little shareholders. Afterwards the chairman told me they wouldn’t be taking 400% bonuses, they were just enabling themselves to: it would be more like 20%. Why any bonuses? He smiled, nonplussed, and suggested lunch some time soon. Read the full article at The Guardian.

As Toynbee says most of us don’t get paid for doing our jobs, we don’t get bonuses and if we don’t do our jobs we get the sack, unlike executive scum who collect fat bonuses in spite of their woeful performance.

The Royal Bank of Scotland has agreed to extend its sponsorship of the Six Nations Rugby tournament until 2013.

Talks over the renewal of the contract – worth about £20 million – began with the International Rugby Board after last year’s championship. Source: The BBC.

Last time I looked, we the tax payers own 70% of the RBS at a cost of well over £20 billion, and the remaining 30% being traded for just 10p yesterday making full nationalisation of the bank very likely. So why on earth has a bank in such dire need decided to waste £20 million of our hard earned cash on sponsorship?

George Monbiot has a very good point about the solutions currently being applied to the credit crunch.

In Russell Hoban’s novel Riddley Walker, the descendents of nuclear holocaust survivors seek amid the rubble the key to recovering their lost civilisation. They end up believing that the answer is to re-invent the atom bomb. I was reminded of this when I read the government’s new plans to save us from the credit crunch. It intends – at gob-smacking public expense – to persuade the banks to start lending again, at levels similar to those of 2007. Isn’t this what caused the problem in the first place? Is insane levels of lending really the solution to a crisis caused by insane levels of lending? Read the full article at Monbiot.com.

And I don’t disagree, the trouble is I don’t see an alternative – look I don’t want millions of workers around the world thrown out of work. Interestingly Monbiot suggests an alternative, demurrage, like Monbiot I’m way out of my depth and sadly I’ve got a day job to do. However this extract on the Swiss WIR system from the website of Bernard A. Lietaer a former central banker and author of the book “The Future of Money: Beyond Greed and Scarcity”.

Once upon a time, during a crisis similar to the one in which we are now getting mired, sixteen businessmen got together to decide what they could do among themselves. They and/or their clients had all received a notice from their respective banks that their credit line was going to be reduced or eliminated. Bankruptcy was going to be a question only of time. They realized that business A needed the bank loan to buy goods from business B, which in turn needed money to buy stuff from its own suppliers. So they decided to create a mutual credit system among themselves, inviting their clients and suppliers to join. When business A buys something from B, A gets a credit and B the corresponding debit. They created their own currency, whose value was identical to the national money, but with the interesting feature that it didn’t bear interest. A debit in this currency needs to be reimbursed with sales to a participant in the network in the same currency, or settled in national money. The country’s banks mounted a massive press campaign to try to squelch this revolutionary idea. Miraculously, that campaign failed, and this little system saved many of the businesses involved. A cooperative was set up among the users to keep the accounts dealing with that currency. Soon participants could also borrow from that cooperative in that currency at the remarkably low interest rate of 1% to 1.5%. All such loans needed backing by inventory, real estate, or other assets, exactly as in a conventional bank. Over time, the system grew to include one quarter of all the businesses of the entire country.

Sixty-five years later, an American professor carried out an econometric study proving that the secret for the country’s legendary stability was that strange little unofficial currency, that circulated among businesses in parallel with the national money. That well known economic resilience was usually credited to some mysterious and unknown national characteristic. Whenever there was a recession, the volume of business in this unofficial currency would expand significantly, thereby reducing the negative impact on sales and unemployment. Whenever there was a boom, business in national currency boomed, while activity in the unofficial currency proportionally dropped again. The surprising implication of this study was that the spontaneous counter-cyclical behaviour of this little system actually helped the central bank of the country in its efforts to stabilize the economy.

This is not a fairy tale, but the true story of the WIR system. The country is Switzerland and the sixteen founders met in Zurich in 1934. Within three months there were 1,700 participants; and within a year some 3,000, linked by a catalogue of available goods and services, classified in 850 categories. The system still works today: the annual volume of business in the WIR currency now is about $2 billion per year. The American professor is James Stodder from Rensselaer University. His remarkable quantitative study, Reciprocal Exchange and Macro-Economic Stability, uses more than 60 years of high quality data to prove the points made in this story. Professor Tobias Studer from the University of Basle, Switzerland, also wrote a little monograph about the history and the economic effects of the WIR on the national economy – WIR and the Swiss National Economy. The WIR cooperative also made initially some mistakes, such as lending WIR money without proper guarantees, a mistake which was corrected in time. The WIR system is also now accepting deposits and making loans in both Swiss Francs and WIR, and has slowly evolved into a more traditional bank. More information on the current status of that system is available on the web. Read more at Bernard A. Lietaer’s website.

Maybe it’s just me, but I reckon anything that excludes bankers has got to be a good idea.