Equity fines for corporate responsibility

Keen readers of our corporate power work will know that we are interested in "upgrading the corporation" in a way which systematically prevents them from considering only the interests of shareholders, which causes so much damage to people and planet.

We have explored alternative business models like co-ops, B corps and social enterprises, as well as innovations like putting “nature” on the board, and found that they offer the kinds of solution that can achieve this goal. But, as we discussed in our article on ethical business structures, around 96% of companies do not operate in this way. 

How can we persuade these others, the majority, to come on board?

Studies of consumer interest in ethical shopping consistently show that, roughly speaking, 10% of people try to always be ethical, 30% of people are uninterested, and the majority (60%) will do it sometimes if persistently nudged. If we imagine that businesses (essentially operated by the same humans) might be mapped onto a similar spectrum or bell curve, how can we address issues within the uninterested 30% and at the reluctant end of the 60%?  Because ultimately, this is where much of the damage occurs.

Equity fines to encourage companies to stop doing bad things

In 2023, Ethical Consumer published an article on the work of professor David Whyte who has shown how, when companies are ordered by courts to pay cash fines, they can commonly just raise prices or cut costs to absorb the impact of this fine. In other words, they can sometimes view them as a cost of doing business rather than a driver to stop behaving badly.

He has therefore been writing on the idea that courts should be allowed to issue “equity fines”, instead of cash fines, if companies break the law. Essentially, this means that the company would be ordered by a court to create new “ordinary shares” to the value of the fine instead of paying cash.

Equity fines are likely to create a better outcome in two main ways. Firstly, they will impact company share value (reducing it) and thereby encourage shareholders to pay more attention in future to the way the company is managed. Shareholders won't be as insulated from the impact of wrongdoing as they can be now.

Secondly, the new shares that are created by the fine will need to be owned by somebody. They could just be held by the government, as is the case for other public shares such as bank bailouts.

Things get interesting though, when we consider the idea that the shares could somehow be held by the community affected by the malpractice. In the case of a water company fined for a pollution incident in, say, Truro, then the community of Truro would become the shareholder. This, in theory, gives power to a group highly motivated to prevent further issues arising.

Some have suggested that it would make sense for a local government authority to hold the shares. 

But what we'd like to explore in this article is the idea that the shares could be held by a specifically created new group called, for the sake of argument, a Public Interest Entity (or PIE for short).

Visualising a PIE

A Public Interest Entity (PIE) could function as an independent non-profit organisation tasked with trying to prevent a specific company from making any more decisions that are damaging to the public interest. In the case of our Truro example, a South West Water PIE might contain representatives from specialist water quality NGOs like Surfers Against Sewage and representatives from the local authority, as well as people with legal, campaigning, and community participation skills.

With a single company focus, a small team can provide an unwavering ethical perspective on choices that face a company on an ongoing basis. Ethical Consumer has some experience of working with an organisation like this, focused on the, (albeit quite receptive to external pressure), Co-operative Bank.

We will talk more about this later, but before then, we might want to ask the question why would anyone want to do this? Because, in words often attributed to Oscar Wilde, "the problem with socialism is that it takes up too many evenings".

At this point it will be useful to examine some real numbers around one heavily fined sector - the UK water industry.

What equity fines could look like for the English and Welsh water industry

There are compelling reasons why the water sector needs to be brought back into a new form of public ownership in England and Wales. We have written about this elsewhere, including in our profile of the campaign group WeOwnIt. However, as one of the most frequently fined of UK business sectors, it can provide a useful theoretical case of how PIEs might work.

For this article, Ethical Consumer crunched some numbers on the value of fines issued to the 10 biggest water and sewage companies in England and Wales using the excellent resource of the Violation Tracker website. These appear in the table below.

(Note that Dŵr Cymru / Welsh Water has been owned by Glas Cymru since 2001, a private company limited by guarantee and with no shareholders. Scottish Water is a publicly-owned statutory company answerable to Scottish ministers and with no shareholders, and hasn't been included in the table.)

When equity fines were being discussed in the UK a couple of years ago, there was an idea that really big fines might be a way of taking a problem company into some kind of public ownership, bit by bit. 

Disappointingly, the table shows that, even with hefty water company fines, this looks unlikely. The most heavily fined companies (Thames and Southern), if issued with equity fines, would only have seen between 2.3% to 5% of ownership being transferred into the hands of a PIE.

The unexpected outcome of this exercise though occurred when we asked the question, what might a PIE earn annually in dividends from its shareholding?

The column "Possible annual income of PIE" is calculated using a rough average of 2% of income earned each year from dividends, which is a conservative estimate across most share types. What this shows is that these PIEs could have an annual income sufficient to hire staff as well as to buy in the expertise of lawyers, campaigners, and community organisers as needed.

In the case of some of the most fined companies (Thames and Southern), their PIEs could have annual income of around £5m each year to nudge, persuade, and/or harangue each corporation into operating responsibly.

In other words, these could be professionally managed organisations with no one having to give up their weekends to make them work.

This analysis also shows that, even the least fined water company, United Utilities, could still have a PIE with an income of £120,000 per year.

As we will argue below, this is still likely to be enough to have a decent impact. In a sense, it also feels right that the most fined companies have better-resourced organisations to challenge the bigger problems they are dealing with.

The importance of independent income for PIEs

When we wrote about the idea of nature on boards, some people asked us why this was different to just having an ethical or sustainability team inside a business. The answer was that a nature director typically has the power and resources to issue a separate annual Nature Report – not overseen by the rest of the company. In other words, it has some degree of independent voice.

However, in both the case of internal sustainability teams and board seats for nature, the resources to operate are provided directly by the company (a bit like an in-house trade union). This means that the resource tap can quickly be switched off should a really critical difference of opinion emerge. 

A PIE, with an independent income from its shareholding, however, could continue to operate even in the case of conflict and confrontation. A company would only be able to cut off the PIE's income by pausing all shareholder dividends, a course of action likely to cause it even more problems.

As well as responding to company decisions, well-resourced PIEs could commission or assemble their own strategic reports presenting different ideas of how the company could be run in key areas. The classic example of such an approach in UK history was The Lucas Aerospace Shop Stewards’ Alternative Corporate Plan of 1976.

Although PIEs as described would have an independent voice, they would not have formal power within organisations like seats on the board or significant shareholdings.

How much would a PIE need to be effective?

Using the multipliers discussed above, we saw how £5m pounds of shares with 2% dividends could generate £100,000 annually. £50m of shares would generate £1m annually, and so on. We know that a small/medium size NGO, like Ethical Consumer or Global Justice Now, operates on around £1m annually with around 20 staff. This could be a significant resource which would focus on just one company.

The CUEB operates on an annual income of around £25,000. It has no staff, but buys in regular staff support from two NGOs, Ethical Consumer and BankTrack, and one co-op technology specialist. It has a voluntary board, around 1,000 members, and a voluntary panel of banking industry specialists. It is an unusual case with a receptive corporate entity, a strong membership, and generous NGO partners.

Out of caution, perhaps we should suggest that four times the amount the CUEB has (meaning £100,000 per annum) might be the minimum viable resource for most PIEs. After all, in some years there may be no dividends so some kind of reserve would be necessary.

However, as we can see below, some significant real world impacts might still be possible.

Which companies might have a PIE?

If we look at the UK corporate fine landscape, using the excellent Violation Tracker again, we can see that the biggest fines occur not for pollution or abuse of workers, but for other offences like bribery, misselling, and competition abuses. 

With PIEs constituted to focus on the public interest, it doesn't mean they need to just focus on preventing bribery if the fine is for this. They should be able to address any public interest damage from a corporation. This is particularly interesting in the case of say Glencore (a Swiss mining business fined £280m for bribery in 2022) but with a long line of critics for its impacts on communities in the Global South.

The table below shows 27 companies fined more than £50m or above in the UK in the last 15 years. If equity fines had been issued, there would be potentially 27 companies which quite large PIEs to hold them to account.

The data source lists a further 80 companies fined above £5m, which we suggested might be the minimum holding to generate income for a self-sustaining PIE. This list of smaller fines includes such well-known names as: BAE, Drax, NatWest, GlaxoSmithKline, Ford, VW, BMW, Sainsbury’s, ASDA, Tesco, Reckitt Benckiser, Nissan, Lloyds, Morgan Stanley, G4S, Dairy Crest, Kellogg’s, EON, and EDF.

It is important also to remember that shareholder dividends need not be the only income of a PIE. At CUEB we have used crowdfunding, grants and membership fees too. It is possible that genuinely mission-oriented institutional investors, of which there are a few, might want to contribute to an effective ongoing course correction mechanism as well.

Visualising a future of many PIEs

Although from here it might seem a long stretch to even a single PIE, in order to get a sense of how significant a change it could be, it is useful to think through practical steps of how it might be possible to get there.

(a) An Office for PIEs

The first useful step is likely to be the establishment of a national body, likely some kind of governmental organisation, to coordinate and facilitate the creation of PIEs. This is because, when a court issues an equity fine, in the first instance there will not be a constituted body to own them. They will need to be held by a third party until a PIE can be established. An 'Office for PIEs' (or PIE factory!) could also help to set up and then regulate them once they are underway.

A hard-pressed cost-cutting government might ask why it would want to spend money on this. It should however be seen as an investment in curbing runaway corporate power, as well as an investment in avoiding externalised costs later on which it is likely to incur. These might include cleaning up after pollution, dealing with the health of workers affected by problem products and more.

(b) Training for PIEs

Running and managing organisations of this type can be quite technical. To some degree PIEs could learn from each other (see collaboration below). But, in the first instance at least, there will need to be technical and legal support. This might be provided in part through an Office for PIEs.

Earlier we discussed the idea of Surfers Against Sewage being part of a water company PIE. With more than one PIE in an industry sector, it is likely that NGO partners could offer training too.

(c) Collaboration between PIEs

As well as small NGO governance being technical, detail around manufacturing or service provision in specific industries can be technical too. Looking at the lists in this article we can see that there is a possibility of more than one UK banking PIE in the banking sector, more than one energy PIE in the energy sector, and more than one water PIE in the water sector. PIEs will be keen to get together to share information on what works. In the same way that we have seen Industry Associations spring up for businesses to collaborate, we might see formal associations of PIEs being created too in the long term.

(d) International PIEs

The potential effectiveness of equity fines is likely to be apparent in many other countries. France for example is often ahead of the curve on corporate responsibility regulation for larger firms more generally. With multinational companies, and with more than one jurisdiction able to issue equity fines, it is possible that, for example, the energy company EDF might have PIEs at the same time in the UK, France, Brazil, Chile, Morocco and the USA. It would be hard to visualise a situation where they would not want to collaborate or, even in some cases, create formal federations.

(e) Working with other shareholders

Shareholder collective actions around ethics are now a well trodden (if not always successful) path to creating pressure on companies, often using AGMs for proposed resolutions. As shareholders, a PIE would not only have access to investor information and communications, it could also have a decent size of shareholding with which to pool resources with other activist investors.

Other ways of creating PIEs

Although equity fines look like a great way of creating PIEs, if they proved to be a good way of getting corporates to serve the public interest more generally, there could of course be other ways of creating them.

• Some mission-oriented companies may want to pioneer this model and donate a proportion of shares to a PIE, in the same way that they may donate a proportion of shares to staff or put nature on the board.
• Governments might decide that for some particularly troublesome sectors, like oil or AI, a requirement to issue a portion of shares to a PIE might be a condition of licence to trade.
• The CUEB, though not a shareholder, has used grants, membership and crowd funding to support its work.

Next steps

This article has mainly been concerned with exploring the idea that equity fines could be used to create PIEs which might systematically create pressure on companies to consider the public interest in real time. Having had more time to explore the practical issues and potential, and with some unexpected conclusions too, the idea perhaps looks even better than we first envisaged.

Research for this article was funded by donors to our Challenging Corporate Power crowdfunder last year. Many thanks to all of them. 

Our Challenging Corporate Power project is ongoing in 2026, and exploring equity fines further and collaborating around them remains a key part of this work.

Our crowdfunder is still open for donations, so please contribute if you can, or contact us to discuss other ideas if you are interested.

Footnote

*The value of a company is normally understood to be its "market capitalisation" - the total value of all outstanding shares. For water companies, many of which are owned by private equity firms, this number is not normally published. OFWAT publishes companies' "Regulated Capital Value" (RCV) - a number that is not without its critics. What we have done for our column on water company estimated value is to take the three companies that have a 'market cap' and an RCV, averaged out the difference (62.8%), and applied this to the RCV for the other seven cases.