THERE IS a simple and obvious question for anyone with a leadership position in the Irish business community. Do you believe in capitalism?, asks FINTAN O’TOOLE
You remember capitalism, don’t you? It is a system in which those who take financial risks receive the rewards of success and the pain of failure. It exalts personal effort and responsibility. It encourages investment by creating a duty on companies to provide timely and accurate information about their health and by ensuring that those who buy shares are not fleeced by those with inside information.
People who run businesses and make a lot of money from doing so have a direct interest in the preservation of this system. Yet, in Ireland at least, the principal enemies of capitalism are capitalists.
The Left is historically weak and ineffective.
It is, paradoxically, leading figures within the business community who seem set on exposing capitalism as a racket and its so-called rules as a cynical sham.
Last week’s astonishing High Court inspector’s report on Jim Flavin and DCC suggests, for example, that a basic rule of capitalism – that you can’t trade in shares when you have access to otherwise hidden information that would affect their price – simply doesn’t apply here.
It seemed to most observers, including the Supreme Court and the Director of Corporate Enforcement, that Flavin’s dealings in Fyffes shares had broken this basic rule. Nevertheless, the inspector, Bill Shispey, found that Flavin’s share dealings were not intentionally wrongful or dishonest. “I have concluded that Mr Flavin genuinely believed that he was not in possession of price-sensitive information”.
What matters, in other words, is not objective facts but the state of mind of the person engaged in a transaction. One’s state of mind as to whether an action is right or wrong is shaped by the standard of ethical behaviour within one’s peer group.
Effectively, the logic of the Shipsey report is that since both Jim Flavin’s business peers and his legal and tax advisers believed (wrongly) that the transaction was okay, then no legal action can be taken against him. Breaches of company law that would result in serious criminal sanctions in other countries are okay in Ireland so long as they fall within the Irish definitions of “genuine belief”.
The circle is neatly vicious – low ethical standards lead people to believe they’re acting properly, which means they’re not breaking the law which means the low standards are fine.
This seems to extend even to basic practices like the keeping of minutes of board meetings. When DCC transferred its Fyffes shares to a Dutch holding company, the minutes recorded the move as “corporate restructuring”. This was a straightforward lie. The entire purpose was to avoid capital gains tax on the sale of the shares. But this is perfectly fine with Shipsey: “ ’Corporate restructuring’ was an understandable euphemism for the tax scheme. DCC would not have wanted the minutes to record what was, in fact, the express purpose of the scheme.”
What we’re seeing here is the self-image of Irish capitalism. It sees itself as a system in which the rules are subjective, not objective, in which transactions that the Supreme Court regards as serious breaches of the law are okay so long as you and your peers believe them to be so and in which company records can legitimately contain “understandable euphemisms”. It seems clear Flavin’s behaviour was indeed perfectly reasonable by these standards, and Shipsey’s report is a perfectly accurate account of how things work.
All of this is, moreover, perfectly consistent with what we know of the attitudes in banking, in regulation and in Government to the shenanigans at Anglo Irish Bank.
It is completely consistent with Brian Lenihan’s expression of his “disappointment at the circumstances surrounding the resignation of Mr Seán FitzPatrick as chairman” of Anglo Irish and of Mary Coughlan’s assurance at the same time that she and Lenihan were “disappointed about the actions [of FitzPatrick] , although not illegal”.
The publication of false accounts and the misleading of potential investors was thus declared to be legal (if “disappointing”) in Ireland. Now, insider trading (described by the Supreme Court as a “fraud on the market”) has been found to be legal in Ireland so long as the person doing it believes it to be so. And the misdescription of transactions in company minutes has been found to be “understandable” if its purpose is to avoid tax.
If I were an Irish business leader, I would be highly insulted by the idea that these are the standards by which I operate. If I had faith in the current model of capitalism, I would be furious at the idea that thousands of small investors should lose money because of these machinations. Since the silence of the organised business community suggests that it doesn’t actually believe in the system, it should not be surprised if the little people become similarly sceptical.