Issue of the week: getting tough on bailouts
Could the coronavirus crisis spur big changes in executive pay and the structure of business ownership?
The Treasury has finally “flexed its muscles” and decreed that large companies using loan schemes backed by the Government or Bank of England (BoE) “cannot also pay cash bonuses to directors or dividends to shareholders”, said Nils Pratley in The Guardian. “About time too.” State loans should be used to promote “corporate survival” – not to “underwrite executives’ pay packets or investors’ distributions”. Most boards have probably grasped this point already, but the “job of the Treasury is to ensure the door is bolted against the devious and the greedy”. Under the circumstances, it’s “astonishing it has taken this long for a bonus ban to be adopted” – the loophole should have been closed weeks ago.
The other big change this week was a quadrupling in the size of the loans granted under the Coronavirus Large Business Interruption Loan Scheme, from £50m to £200m. The low level of take-up had spurred a rethink, said the FT. It appears the original scheme was doing little for mid-sized companies, causing many to fall through the net. Firms were either “too big to access government loan schemes aimed at small businesses” or “too small” to qualify for the BoE’s corporate financing facility. The revamped schemes should also help many in the travel and hospitality industries, which have been “particularly hard hit” by the lockdown. All credit to Chancellor Rishi Sunak and the BoE for this timely tweak, said Alex Brummer in the Daily Mail. Both have proved “super-flexible” in adapting an array of rescue schemes to meet the needs of commerce – from self-employed workers to large publicquoted organisations. And they’re right to ensure that “those who feed at the Government’s trough” play fair with stakeholders. “Maybe, just maybe” recent “pay gluttony” – of the sort we saw at builder Persimmon and more recently at Ocado – has met its match.
The problem of the “undeserving rich” has been with us for years, said Katherine Griffiths in The Times. Many see this crisis as a means of addressing it. As things stand, “some of the country’s richest people” – including Sir Philip Green, Sir Richard Branson and the chemicals tycoon Sir Jim Ratcliffe – have tapped the Government “to pay most of the wages of their staff under the furlough scheme”. Critics believe the Government “could be more ambitious”, particularly if it ends up with stakes in businesses it may have to hold for years. Why not, for example, impose tougher carbon-emission targets on airline bailouts? This week’s curbs are a first step – but “if governments do not ensure that the pain is shared”, the alternative “could be dramatic”. Few in business want to see a “rerun of the Occupy movement that targeted Wall Street and London in 2011”.