What’s the problem?
Wouldn’t you like your bank to stop investing in weapons, in polluting industries, in carbon heavy energy sources, to stop feeding inequality, even the basics like avoiding doing business with criminals? Do you even know what your bank is doing with your money? What about your pension, don’t you wish you had a bit more say in how it was run, how much your pension managers pay themselves? Do you know where your insurance premiums end up or who gets to decide where to invest them? At the moment you probably don’t know and don’t get to decide on any of this.
What’s so bad about that?
The problem is that financial institutions have many stakeholders, including customers, employees and the rest of society, but are only really accountable to one group – their investors. And even they find it hard to control management sometimes. The result is that customers can be miss-sold financial products, pensioners can be short-changed, investments can be made that harm people and the environment or that break the law.
What’s the alternative?
One of the ways this could be improved is by making financial firms more accountable to the people affected by their actions. We should encourage shareholder firms to toughen up their governance and increase their stakeholder representation, such as employee representatives on the board. Boards of directors could include customer and worker representatives and other stakeholder representatives. Asset managers could invest as customers want, for example in relation to environment and human rights issues.
But there are also many alternatives to shareholder firms, there are locally owned co-operatives, public banks such as green investment banks which can be run democratically or local savings banks, there are mutual pension schemes where savers get to decide and so on. These forms give us a much better chance, as stakeholders, of having a say over how finance is run.
How will it help?
We’ve left things to the financial insiders for a long time now and society’s problems are just getting worse: we are still recovering from the financial crisis, inequalities continue to rise, and the planet is heading for catastrophe. Making financial firms more accountable to more people would help to re-connect the financial system to society’s needs and rediscover its social purpose. We would see less miss-selling, more responsible investments, better governance and more trust in the financial sector.
What steps could we take to get started?
- Promote public banks, stakeholder banks, network of people’s banks, ethical banks, and small banks.
- Promote local, mutual and cooperative banks, pension and insurance providers and other financial institutions to give stakeholders as say in what gets financed.
- Promote democratically accountable multi- and bi- lateral development and investment banks including green investment banks.
- Remove state aid, fiscal accounting, and other barriers to public banking.
- Launch citizen wealth funds where the people have a direct input into which projects are financed.
- Ensure broad and diverse stakeholder representation on the boards of private financial firms. For example, include employee, customer, pensioner and citizen representatives.
- Enforce civil and criminal liability for senior managers of financial institutions.
- Require full disclosure of all fees and subsidies.