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Social responsibility and finance - on the precipice

Date: 27 Nov 2011
Author: Mallen Baker

In a recent article, the BBC's economics editor Robert Peston highlighted the fact that in 2012 the chances are that the economy - punch drunk as it is from the various flavours of debt crisis it has been pummelled with over the course of the year - will be hit by the collapse of a major bank and / or government.

2012 - when much of the debt falls due

In <a href="http://www.bbc.co.uk/news/business-15889136" target="_blank">a recent article, the BBC's economics editor Robert Peston</a> highlighted the fact that in 2012 the chances are that the economy - punch drunk as it is from the various flavours of debt crisis it has been pummelled with over the course of the year - will be hit by the collapse of a major bank and / or government.

His warning came about with the observation that a huge volume of the loans that were taken out in the boom years are about to become due. Either the money has to be paid back (and many institutions won't be able to) or those old debts will need to be replaced with new debts.

And there isn't exactly a queue forming of capital providers looking to lend large amounts of money to businesses carrying a huge debt burden.

It means that the focus on the social responsibilities of the financial sector is going to get even sharper over the coming year and a flock of chickens come home to roost.

The question is whether that focus will lead us to more fundamental questions about how businesses are governed, or whether we will simply find a few new scapegoats. A few named top executives to sack, and replace with some fresher faces that will promise to see us through hard times to the point where we can get back to business as usual at the other side.

A key problem with the behaviour of the banks came as businesses became more and more convinced that their legal duty as companies was to maximise shareholder return. It wasn't always so clear, but in recent decades influential voices have persuaded many that such is the case.

The problem is that banks are not just any businesses. If a major retail bank goes bust, the whole of society has a problem. Hence the creation of the 'too big to fail' tag much used over the last couple of years.

In other words, those businesses have higher expectations on them from society because their actions are inextricably bound up in consequences that affect wider society to a major extent. And that defines their social responsibilities within a more extreme context than for other businesses.

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A key problem with the behaviour of the banks came as businesses became more and more convinced that their legal duty as companies was to maximise shareholder return.

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