Top lawyer says CICs should be new auditors of 'shipwrecked' economy

One of the country's top charity and social enterprise lawyers has torn into current auditing and credit rating regimes, calling for major restructuring through a social enterprise model.

Stephen Lloyd, senior partner at Bates Wells and Braithwaite, made the call in a lecture on 'Capitalism in Crisis' given to an audience of leading business thinkers at London's Cass Business School last night.

Lloyd warned that the trend of charities and social enterprises taking over from the state would not continue. Instead, he predicted it would be traditional, for profit agencies that would be running our key services.

'If my fears are true... we will then find our key services are being run by for profit agencies who may display some of the same unattractive qualities that have just almost shipwrecked the good ship United Kingdom,' he said.

But as we viewed the 'wreckage' left by these organisations on our economy, the time had come to consider if capitalism could 'now learn from charities', Lloyd added.

Lloyd said auditors had built a huge industry of consultancy and tax advice on the introductions secured through carrying out statutory audits. He argued that firms which audited quoted companies should be broken up and their audit work put into Community Interest Companies. These would be regulated by a public Companies Audit Office and financed by a statutory levy.

He also said that credit rating agencies should be reformed into not-for-profit organisations controlled by key stakeholders as 'currently they profit from rating a risky product "AAA" which helps their shareholders but no-one else'.

Lloyd referred to the contrast between the charity sector, which has sought to engender public confidence by demanding good regulation, and the private sector, which is constantly trying to avoid it.

He called for greater regulation of the banking system, in particular the splitting of retail deposit banks, which have a State guarantee for depositors, from the risky activities of investment banks, which the State should not guarantee.

Lloyd also said that at least one non-executive director of all quoted companies should have extensive experience of the social/voluntary sector to add a new perspective to board discussions.

He continued that large charitable foundations should set-up their own pooled service, which would hold proxies for all the shares of charitable foundations and would monitor the performance of companies in which shares were held. He also called on charities to set an example by engaging more in mission-connected investment to encourage responsible capitalism.

Lloyd concluded that for too long money has come to be seen as an end in itself. 'Money needs to be put back where it belongs as a means of achieving economic exchange and growth and as society's servant and not its master,' he said.

'Charities have always known that and society needs to be reminded of that.'