This month sees the launch of Stephen Wilks’ new book The Political Power of the Business Corporation. Here he discusses the causes and consequences of business corporations entering government, explaining that, with this privilege, must come accountability.
Who Governs? used to be a relatively straightforward question with several predictable answers. Perhaps the Cabinet, or the Prime Minister, or was it the House of Commons, or ‘really’ the civil service? All these possibilities focused on public bodies mandated directly or indirectly through the democratic process and held accountable through constitutional convention.
Now there is a new kid on the block. Business corporations have entered (or perhaps re-entered) government and are increasingly becoming the partners of traditional public bodies or (in some cases) have actually replaced them. This arises from privatisation, contracting out, outsourcing, public-private partnerships and PFI as the increasingly familiar devices by which governments have withdrawn from service provision.The ‘New Corporate State’
Private provision of collective or ‘public’ services is as old as the hills but the politics of the public services industry are new. They can be seen in the subordination of the civil service; the engagement of ministers with corporate leaders; and the legitimacy attached to business advisers. This goes beyond the world of conventional contracting to involve business leaders in policy making and in sharing key political decisions with a quasi-constitutional weight. The old certainties of ‘the Westminster system’ or ‘the Whitehall model’ no longer capture the processes of British government; we have created a ‘New Corporate State’.
Examples abound of business sharing in government but here I want to emphasise one completely extraordinary example of business literally entering Whitehall – in the shape of the Non-Executive Directors who sit on the governing boards of all government departments.Whitehall embraces corporate governance
Without fanfare the Treasury has reproduced plc-type corporate governance throughout the public sector. Every accounting unit within government now has a ‘Board’ with a CEO, finance director and non-executive directors. This model goes right to the top, with Departmental Boards chaired by the Secretary of State. Why this organisational model should become mandatory in the public sector has never been made clear, but one of its effects is to allow the non-executive directors privileged insider access and understanding of government at the highest level.
The Cabinet Office has recently reinforced the Board model and embraced the quoted company device of a ‘lead non-executive board member’. On the Cabinet Office Board this is Lord Browne of BP fame and he has been trawling through the British corporate elite to recruit additional high-profile executives to serve on Departmental boards. Stephen Crone at Democratic Audit produced a listing of the non-executives in mid 2011. Of the 57 appointees, 74% were from business including prominent CEOs and, more controversially, some Conservative Party supporters and donors. The Public Accounts Committee questioned the appointment process for these non-execs, Stephen Crone questioned their suitability; this blog post questions what they are doing at the centre of government at all?Corporate executives in Government
In July 2012 Lord Browne gave evidence to the PASC and told them that boards “do not have a statutory constitutional position but they are enormously powerful advisory groups which can change the way people get things done”. The non-executives contribute expertise, they advise, they ‘challenge’ and they have now been given the remarkable and controversial power to recommend the replacement of Permanent Secretaries whom they regard as underperforming. The 16 lead non-executive directors are particularly influential and include such luminaries as Sam Laidlaw (CEO of Centrica at the DfT), Sir Andrew Witty (CEO of GlaxoSmithKline at BIS) and Paul Walsh (CEO of Diageo at DCC). They symbolise the influence of the corporate elite in government in a variety of ways:
- First, the non-execs provide strategic leadership, injecting business principles and priorities into the leadership of the civil service which is in any case becoming colonised. Of the ‘top 200’ group of civil service leaders, the majority have been recruited from outside the service.
- Second, advice on strategy, implementation, delivery, performance and staffing amounts to influence over the making of public policy.
- Third, board membership provides privileged access to ministers and to senior civil servants. Lord Browne noted that ‘it is something quite different, as a business person, to get with the Permanent Secretary, the directors-general, the junior ministers, the Secretary of State, to begin to see what is really going on’.
- Fourth, non-executives obtain invaluable information which is almost by definition confidential and possibly of great commercial advantage.
- And finally, the whole process of elevating non-executives as people of standing and influence further legitimises models of private sector management and reinforces the discourse of the efficient private sector providing the standard for which government should aim.
The respect for corporate leaders, and the way in which they have been privileged in their access to government, has been characterised by the Conservative David Davis as ‘crony capitalism’. This may be too incendiary, but it does underline the changed role of private sector leaders in an alliance of political and corporate elites. Corporations have become so influential and central to processes of government that they have become governing institutions. The non-executive director syndrome illustrates the constitutional dilemmas that this does (or should) provoke. Who elected the non-executive directors? How are they held accountable? Why should their influence restrict democratic choice? How can ministers justify their privileged access to the political process?
It’s time we embarked on a constitutional debate to create mechanisms of corporate accountability. Lord Browne has appeared before a Select Committee, as do other corporate executives, such as Nick Buckles on the G4S Olympic security debacle, but this is all voluntaristic, without a framework of responsibility. If corporations are to enjoy the privileges of participation in government, they need also to recognise their responsibilities. These go beyond profit and shareholder value to recognise the wider public interest. When corporate executives enter government, they must expect to be held to account; how we secure that accountability is a central issue for a new constitution for our New Corporate State.
This article first appeared at the Elgar Blog