Dear colleagues
You may find this article interesting:
www.ft.com/content/3ab3ec60-dcba-4fd7-846f-0acbe36ffa65
It’s behind the FT paywall, so I’ve pasted the whole article below my signature.
Although its main focus is commercial companies in the United States, it sheds some light on the difficulties we have faced in obtaining basic information about St Mungo’s financial position.
As the article states:
with the exception of basic financial information, corporations remain black boxes.
In the UK, the basic financial information which employers, including charities, must provide, is published in an annual report to Companies House. You can read all St Mungo’s annual reports here:
Sadly, the information that must be included in these reports by law is very, very minimal. There is an overall view of the organisation’s finances and some information about the salaries of its most highly paid staff, but very little else.
When I was elected convenor back in March, I asked St Mungo’s senior management to share the management accounting information seen by senior decision makers at St Mungo’s with elected representatives of the workforce. Union reps need this to enable us to understand the organisation’s finances.
There is no reason to withhold this information from union reps who are employees of St Mungo’s. Yet for months, management either behaved as if they had forgotten about this request, or pretended to misunderstand what the union was asking for. Finally, they just refused without giving a reason, other than to say they might reconsider if given evidence of other organisations sharing this information with their union reps – as if that had any relevance!
St Mungo’s workers are unhappy because, in real terms, our pay fell drastically in 2021/22 and the organisation’s leadership refuses to do anything to put this right. The Executive Team has responded to our pay claim by declaring that there is no money to pay for the increase we have requested. We do not believe this is true, and the refusal to share basic accounting information, beyond the bare minimum required by law, is evidence of bad faith. When we have met with management and they have told us there is no money available, we have asked questions and senior staff have claimed not to know the most basic information about the organisation’s finances. Often, they have said they will get back to us but failed to do so. Sometimes they’ve said they will need to ask the Executive Director for Finance. At the meeting for Stage 3 of the Avoidance of Disputes Procedure, he was present but said he didn’t know when the lease on TMS comes to an end or how much it costs in rent.
We read the published accounts lodged with Companies House and note that the cash surplus indicated in those reports is £22.5 million, compared with a target set by the Board of Directors of between £14 and £18m. We know that the surplus would be even larger if rental income was managed properly. We know that employer National Insurance contributions changed unexpectedly part way through the current financial year, in a way that significantly reduces St Mungo’s costs. We know that St Mungo’s is haemorrhaging money to employment agencies because underpaying staff is a disaster for recruitment and retention of employees. There is more that we would like to know, but the Executive Team do not want to tell us.
Internal surveys show us that staff confidence in the Executive Team has plummeted. The most recent Pulse staff survey undertaken on behalf of St Mungo’s management showed that the proportion of St Mungo’s employees who agreed with the statement‘The Leadership Team (Directors and Executive Directors) provides effective leadership’
had fallen drastically to only 36%.
The way to restore confidence is through transparency, and carefully avoiding any impression that there is something to hide. Your Unite representatives are happy to answer any reasonable questions that management ask us about our work, because good relationships are built on openness. It’s time management did the same.
With all good wishes,Jacob
Jacob Sanders
Unite convenor
In his famous book The Big Short, Michael Lewis writes that “when, in 1981, [John Gutfreund] turned Salomon Brothers from a private partnership into Wall Street’s first public corporation . . . from that moment, the Wall Street firm became a black box”.
Though Lewis was writing about banking, he was referring to a problem that existed not just at Salomon, or even just within the financial sector, but in nearly all American corporations, even public ones. In all too many areas, with the exception of basic financial information, corporations remain black boxes.
Opacity makes it difficult for regulators, investors, workers and customers to figure out important facts, from the full financial risk positions of big companies (a 2018 IMF paper notes that off balance sheet funding had grown since 2007), to whether they live up to their espoused values, to if they treat individual employees fairly.
As the economist Milton Friedman said back in 1970, the social responsibility of managers is to “make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom”. Fair enough. But what if companies don’t even release enough data to let people know whether they are living up to law or custom?
It’s an issue spotlighted by the new rules on corporate pay transparency which came into effect in New York state last week. The rules, which force companies with four or more employees to include salary ranges when they advertise listings, follow on from similar laws already introduced in California, Colorado and Washington state. Already, they’ve exposed a huge bifurcation between lower level employee pay and those in the upper ranks, while demonstrating how broad (and nebulous) the range of salaries at the top of an organisation can be.
“Employees will have questions about their own pay as a result of seeing pay ranges posted on jobs similar to their own,” says Tauseef Rahman, a partner in the consulting firm Mercer’s career practice.
The issue will be particularly pressing at a time when, according to Mercer, over 80 per cent of employees think it’s important that employers adjust salaries to reflect the current economic environment (in which wage inflation hasn’t remotely kept pace with overall inflation, and even less so with skyrocketing housing inflation) — but only 21 per cent of US employers say they’ve adjusted pay to align with living wages.
Pressure for transparency will rise, even if unemployment does too. Companies will be pushed for more information beyond fixed pay — what about non-cash compensation, stock options and differing benefit regimes? All of these issues are being targeted by a growing number of workers, particularly younger ones, who feel quite rightly that they haven’t got their fair share of the corporate pie (the private sector share is still at near record highs compared with labour).
But pay transparency is just the tip of a much bigger iceberg of corporate opacity. There is an entire body of law, around things like trade secrets and patents, that is meant to keep information inside companies. Sharing intellectual property around vaccines became a huge, worldwide legal battle during the pandemic, as US and European companies didn’t want to give up their patent secrets, even in the face of a global crisis. They were quietly compelled to do so by governments, in order to speed up vaccine production, even as they fought in public to keep legal protections.
The issue isn’t resolved, nor is it going away. While the US constitution itself allows companies to keep patents, and trade secrets are protected by state laws, there are going to be more and more global health crises that will necessitate such information sharing. Governments will have to find a way to ensure that smaller firms and innovators can protect intellectual property, while making sure that corporate monopolies aren’t locking it up at society’s expense.
What’s true for patents may soon be true for supply chains as well. Companies are often reluctant to reveal what information they have about suppliers for competitive reasons. But as any number of recent supply chain disasters have shown, they often don’t know enough themselves, having outsourced so much production to other companies and countries.
That’s about to change. As climate rules requiring full disclosure of carbon loads in the supply chain eventually take hold, reporting standards will rise. What’s more, in an age of decoupling, in which governments are scrambling to understand whether they can make crucial products at home, companies will be compelled to learn more — and share more — about where risk lies, with both the public and private sector.
Part of what has allowed such opacity in the US is that companies are legally persons, and enjoy all the privacy allowed to individuals. But that’s changing too. In September, the Treasury finalised a rule requiring companies to give much more information about who their owners really are.
It’s about time, say academics like Stanford’s Anat Admati, who researches corporate power and opacity. “A corporate ‘person’ shouldn’t have so much ability to operate in the dark,” she says. “The forces of ‘free markets’ are undermining trust in democratic institutions to police them.”
Indeed, when even Friedman’s standards aren’t being upheld, things have gone very dark indeed.
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