THERE is no belief more powerful than the one that goes: America is a meritocracy which gives everyone a chance. Colin Powell, who might well become the first black president of the US, has made much of the fact that it was lucky for him his Jamaican parents migrated to the Bronx and not Brixton. In Brixton he might have become the driver of the number 37 bus, he has suggested. Birth in the Bronx has given him a better than even chance of reaching the White House.
It’s all part of the myth that the US is the most open society in the world. But if my recent experiences in the US are any guide, then British business is much more open than its US counterpart.
Look, for example, at the information that private limited companies have to provide in the two countries. The major sports in each country are football here, baseball in the US. For all its problems, English football is much more open and accountable than baseball. Football clubs, being limited companies, have to file their accounts with Companies House.
Comparable information on baseball clubs is almost impossible to find. Whenever I talked figures with the owners of baseball clubs, they all assured me they were losing millions. But when I asked for accounts and information on losses they looked at me as if I had offered them violence. The common refrain was, “we are a private company and we are not required to disclose such information.”
True, quoted US companies have more onerous reporting requirements than our quoted companies. And yes, the Freedom of Information Act, the constitutional rights of the press and the more liberal libel laws all help make the US a more open society. But when it comes to private limited companies, the US shields them from public scrutiny.
This means that had John Birt been head of ABC and not the BBC then it is very possible that his cosy arrangement, where despite being director general he was paid as if he was self-employed, would never have come to light. It only came out because a diligent journalist checked up on the accounts of Birt’s company in Companies House. In the US, where there is no Companies House to check accounts of a limited unquoted company, Birt’s accounts would not have been available.
The reason for this is that while the Freedom of Information Act and the many other symbols of US openness are federal laws, US companies are governed by state law. There is no federal company law equivalent to our Companies Act. Individual companies are registered at state level. Reporting and disclosure requirements can vary from state to state.
Here we meet the Delaware phenomenon. The state is generally regarded as having the friendliest company registration regime in the US. Most US companies tend to be registered in Delaware, even if they are located in another state. A company registered in Delaware has to disclose certain information to the secretary of state for Delaware but this amounts to no more than a list of the directors and major debts, such as mortgage etc. No audited accounts have to be filed.
If you do business with a company in the US, you can get hold of the financials, insists Jeff Wehner, tax partner at Arthur Andersen. “So while the New York Yankees may not file accounts which a member of the public could scrutinise, if you were doing a deal with the Yankees or if they were looking to raise capital, then audited financials would have to be made available. But in general compared to the UK, the US corporate system provides more protection to the incorporated company, the feeling being that
only those who are doing commercial business with it can have access to detailed financial information.”
Of course, this protection for the corporation is balanced by greater access to the financial records of individuals, particularly individuals who seek public office. So if Colin Powell were to run for president and seek federal assistance then he would have to disclose his tax returns. In contrast, we are never likely to find out anything about John Major’s or Tony Blair’s tax returns.
So which is the better system? Ours, which tells us about how John Birt made his financial arrangements but does not tell us anything about the man who could rule us? Or the US one, where Birt’s equivalent could have whatever financial arrangements he desired but Blair’s counterpart would have to reveal all his financial secrets if he wanted to be elected? In this day of political cynicism and the growing belief that all politicians are crooks, the US system may be considered to have the edge. Whether it does or not, the US treatment of corporations indicates that the nation’s openness is not quite as unfettered as Colin Powell might want us to believe.
© Mihir Bose