Ex-Northern Rock shareholders are blubbing that they weren’t compensated when the government took control of their bank as it lay dying, haemorrhaging money as account holders deserted it in the first run on a UK bank in decades…

They claim…

“This summed up all of our thoughts when our Committee learned of an unbelievable ‘decision’ whereby the European Court of Human Rights has decided that the case made under Property Rights Law Article 1 of Protocol No 1 will not be heard in the European Court.”

for any interested the protocol stated…

This imposes an obligation on the State not to:
interfere with peaceful enjoyment of property;
deprive a person of their possessions; or
subject a person’s possession to control.
However, there will be no violation of this right if such interference, deprivation or control is carried out lawfully and in the public interest.

Of course, they want their compensation since their mismanagement lead to the bank being taken into state control when it was separated into 2 trading entities, a “good” and “bad” bank, with the good being sold of to Virgin for £747m.

No doubt it has been cheaper in the long run for the state than actually letting the bank die and then compensating the account holders, it also limited the damage to the economy. It also illustrates the disconnect between businesses and shareholders. They seem to believe they are entitled to the benefits of company ownership without any of the risks.

So how to address this?

Well firstly no compensation if your company goes bust. In fact some form of limited liability beyond the shares themselves would encourage active participation in the governance of a company.

Further, when companies are fined for criminal or illegal acts shareholders what real impact does it have beyond a cost that is ultimately passed onto the customers? Particularly pointless in the case of utilities or monopolies. What I would propose is that fines are levied directly from shareholders, divided equally per share. It may be that the companies compensate them in the form of increased dividends. Fine, no problems there. But the actual act of having to pay would again encourage a bit more interest in corporate governance and ethics. Same as you miss having to pay the tax office direct far more than if it’s deducted at source.

Either way, if you want the freedom to take the profits from invested wealth, then you are also free to take the consequences when it fails.

Leave a Reply

Categories