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New year, old issues – lessons from the East India Company

The activities of a global company from centuries ago contain a number of parallels, and lessons, for corporate behaviour now

Clothes different, ambitions similar

The East India Company was, in many ways, the precursor of the modern corporation. Established in England in 1600, its trading empire encircled the globe, and the company conquered nations and ruled over millions with its private army.

In his book, The Corporation that Changed the World, Nick Robins provides a fascinating history of the company, replete with “… stock market bubbles, eye-watering corruption and government bail-outs”.

But this is not simply a work of history. As we continue to deal with consequences of the global financial crisis, as we see the scale of influence that corporate interests have on electoral and policymaking processes (and not just in the United States), and as we see the scale of tax avoidance by some of the world’s largest companies, the mistake we must avoid making is thinking that this are events that have never occurred before.

As Robins reminds us: “What are often seen as entirely novel problems are, in fact, enduring facets of global economic history.”

Power and dominance

In his analysis of the East India Company, his description of the characteristics of the company mirror the issues we see today. These include the perception that certain companies that are too big to fail or too powerful to be regulated; economically damaging and politically dangerous levels of corporate concentration in many sectors; the use of political lobbying and influence by large companies to win commercial privileges and tax breaks; and the difficulties that the nominal owners and providers of capital – even when these are the state – face in holding companies and their executives to account.

Robins argues that “a trinity of design flaws” unite the East India Company with contemporary global corporations: the speculative temptations of executives and investors, the drive for monopoly control and the absence of automatic remedy for corporate abuse. At the heart of these is the relationship between profit and power, and the reality that companies want both in order to protect their interests.

Impact accountability

Discussions of power are inextricably linked with questions of accountability, specifically how can companies be held to account for their actions and their impacts on society.

Robins argues that: “[I]t is public regulation that is essential to protect the corporation from its own worst instincts and deliver public as well as private benefit.” It is easy to be sceptical about this conclusion, and to point to the erosion of many states’ regulatory powers or to the frequently close relationship between many companies and their home governments as evidence that the governments are unwilling or unable to take effective action.

Yet, as we have seen in the banking sector over the past year, regulators retain the ability to impose massive financial penalties on companies that have broken the law and to impose conditions on the structure and operation of companies (eg the ring-fencing of retail and investment banking).

Sanctions imposed

Individuals, too, can be penalised. In the banking sector, again, executives and managers have lost their jobs, had their incomes reduced, had some of their historic bonuses clawed back and had their personal reputations (and future employment prospects) seriously damaged.

Of course, there are those who would argue, and with some legitimacy, that further action is required. However, the nation state is far from powerless and that governments are willing to act to penalise at least the worst excesses and worst consequences of corporate action.

As Robins argues, far from being a dusty relic, the East India Company exemplifies the constant battle within companies between the logic of exchange and the desire for domination. Even two centuries on it provides a timely reminder that the quest for corporate accountability is a perpetual tension between directing companies to ensure that their actions do not undermine the public interest, while also ensuring that they provide the goods and services that modern society requires.

Dr Rory Sullivan is an expert on corporate responsibility, climate change and investment-related issues. He is strategic adviser, Ethix SRI Advisers, senior research fellow at the University of Leeds, and a member of the Ethical Corporation Advisory Board.

Nick Robins (2012), The Corporation that Changed the World (2nd edition, Pluto Press, London).

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