Abuse of limited liability companies has accelerated during the pandemic and it's time for change

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There is, in human nature, the urge to fight or to take flight when presented with a crisis.

In situations where it’s merely you versus the crisis, either instinct might be valid. For instance, say you’re walking along one day and suddenly, as if from nowhere and in probable contravention of the laws of space-time, you meet a tiger.

You’re within your rights either to try to fight it (good luck with that, puny human). It’s perfectly valid for you to run away from it (excuse us, we’re just getting popcorn). And in fact, it’s entirely within reason to do anything else which might just conceivably seem like a good plan to your adrenaline-flooded brain in that moment of peril.

But instances of individual impact are actually relatively rare. Nevertheless, the instinct for flight or fight remains.

Basic Instinct

It’s the same instinct that, in the early stages of the pandemic, saw people panic buying all the basic necessaries of 21st century life. Stripping supermarket shelves and hoarding supplies at home in the event of a long siege against the Coronavirus or the breakdown of supply chains is the equivalent of running away from the tiger. Panic buying is the most organised form of looting on earth. But that doesn’t just impact you and the shelves. It impacts everyone else who might need to buy things. In particular, it impacts the more vulnerable, who might not be able to get to the stores as easily. They directly suffer from the shortages your panic-buying reaction creates .

It’s also the same instinct that, when local and national lockdowns were first mooted, saw people everywhere flocking to a local beauty spot. They were determined to ‘make the most of’ their opportunities to be out and about with other people before the restrictions came and curtailed their freedoms.

There was technically nothing remotely logical about this. Holding mass congregations ultimately just served the virus and worsened the public health crisis. But people acted instinctively, in their own narrow self-interest, scared of the uncertainty that was about to engulf their daily lives. They took the opportunities they had for days out with other people while the taking was good, irrespective of the fact that doing that made the situation ultimately worse for everybody.

Businesses Are People Too

What’s the point?

The point is that businesses are run by people. People with the same fight or flight instincts. People with the same uncertainty, when the pandemic was about to hit.

That meant businesses, already used to misusing things like their limited liability status, went into a kind of grasping, instinctual overdrive. Rather than immediately reacting for the benefit of the herd (society as we know it), many businesses went rigid, and used their limited liability to the maximum of its legal worth. They began acting along the lines of the instincts they’ve learned over the decades since the energy crisis of the 1970s and the subsequent business-freeing governments of the 1980s.

Staff numbers were cut as a knee-jerk reaction to avoid the responsibility of paying large wage bills during times when income was suddenly more uncertain than at any previous point in companies’ histories. When businesses, hit by the sudden lack of custom or orders, went bust, others asset-stripped them mercilessly, the way they’d been taught was right.

Business Red – And Green – In Tooth And Claw

In some senses, there’s an almost ecological element there – pieces of dead companies being ‘eaten’ by living ones to keep the ecology of business going. But in other senses, this carnivorous culture means the death of competitor-companies is not looked on as a thing to be avoided for the good of the industry and the economy as a whole. Rather, it’s seen as a banquet-in-waiting, a carcass to pick clean at the first opportunity.

The sudden overdrive of these instincts to protect the individual company, first, last and above everything else, made a trend that had long part and parcel of the business world more starkly visible to all.

And perhaps the oddest thing about that is that it surprised no-one. In times of crisis, the public at large, and those who understand the business world in particular, absolutely expected businesses to go feral. To go visceral, biting those who had supported them and turning inward, curling up to survive the oncoming storm.

Not Just Another Day In The Office

Honestly, were the Coronavirus any normal business catastrophe, the sudden gripping splurge of limited liability abuse when the pandemic began might have been seen as just another normal response of business to another real-world disaster. Just another day in the office.

Except it’s not just another day in the office.

If anything, the panic reaction of some businesses, using their limited liability to behave in a spasm of pure self-interest and to hell with society as a whole, has allowed for a pause. A slap in the face of questioning whether this is how we want to carry on conducting business.

It isn’t.

It will be for some, obviously, but there’s evidence to suggest that if the whole business world continues to abuse the freedoms of limited liability, layoffs and asset-stripping, the effect of the Coronavirus will be an economic atom bomb, to follow on from the public health disaster.

The Oncoming Storm

The IMF is already forecasting a Great Depression in the style of the 1930s in the wake of the Coronavirus crises – and more particularly, in the wake of the measures imposed to deal with the Coronavirus crisis.

Global GDP down $9 trillion dollars (£7.2 trillion) over the next two years. Global economic contraction of 3% in 2020. These are by no means normal circumstances. If business continues to abuse the limited liability of companies, it will only exacerbate the effects of the Coronavirus.

If the business community continues its insular practice of protecting the company above the system and the people in society, then both the system and the society will atrophy under it, and take the company too.

Come Together

It’s time to re-integrate business with the other players in society – with people, with workers, and even to some extent with government. As Javad Marandi states: It’s time for business to put its money where its mouth has been for decades, and maintain as much employment as it can as we face the potential impact of the Coronavirus on the economy. Only by maintaining employment, rather than cutting and running, can we hope to ensure that money remains in circulation throughout the economy – through wages, rents, mortgages, and the whole retail sector. Everybody understands that limited companies exist to provide dividends for investors as much as they exist to provide products and services to customers.

But with the scale of the Coronavirus impact coming down the line at our society, business needs to stand strong against it, rather than reacting with its usual panic-driven, understandable instincts.