79. On Honouring Contracts.

Dearly Beloved,

One day there was a scandal at the Ministry where I worked in Oman. Someone in the wages office had embezzled the wages of the Pakistani labourers who had not been paid. All the Omanis felt responsibility for the wrong that had been done because the sense of belonging is so strong in this Muslim community. There was much discussion about the rights and wrongs of the situation. Eventually the consensus seemed to be that a hadith had been contravened, that is a saying of the Prophet Mohammed. That saying was “a labourer should be paid before the sweat on his forehead is dry”.

I was reminded of this incident when I read about the scandal surrounding the company called Greensill Capital. The scandal is immensely complex and there are to date 116 articles in the Financial Times on its various aspects. It seemed to me that there was a greater scandal in the background. In recent years many large companies have got into the habit of paying their contractors late. One assumes they can do this because the contractors are dependent on the large company for sales, if they make a fuss or sue then the large company may curtail business with them and use another company. Taking legal action is also time consuming and expensive. What struck me was that late payment had become so widespread in our economy that one of Greensill Capital's businesses was set up to pay the contractors what was owed them and claim the money later from the large company (known as reverse factoring). All for a fee due from the contractor of about 10%.

We live in a society based on contract and the honouring of contracts and many other societies operate in a similar manner. Millions of agreements are made daily, most are verbal and most are honoured. Without these agreements and the honouring of those agreements our society would founder. And yet many influential individuals in large, powerful companies have decided to do away with the moral obligation of honouring contracts they had made for the simple reason that they can get away with it. The money owed to contractors thus becomes an involuntary, interest free loan by the contractor to the company. One assumes some of the money that should have been paid to the contractors is used by the debtor company for other profitable purposes when that profit should have been due to the contractor whose money it was. Is that not a form of theft?

Companies have not always behaved in this way. John Colet the Dean of St Paul's set up a boy's grammar school in 1409. He gave the money in trust to The Mercers' Company one of the merchant guilds which controlled the making and processing of cloth. So six hundred and twelve years later we have St Paul's Boys' school and a more recently created St Paul's Girls' school, possibly the best academic schools in the country. They are still administered by the Mercers' Company. Their Latin motto means “faith and letters”. A chapel with a crucifix on the altar still stands at the center of the Mercers' Hall in London which has evolved into a largely philanthropic organisation.

How many commercial companies could be relied upon today to administer such a project without somehow laying hands on the funds? Surely our society should adopt the saying that “A contract should be honoured before the ink on the signatures is dry”?

Peace,


Paul.


The Badge of the Mercer's Company with The Mercer's Maid
Probably a representation of The Virgin Mary with a Celestial Crown.


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