- Lucy Reynolds, research fellow, London School of Hygiene and Tropical Medicine, London WC1H 9SH
The unfolding cautionary tale of Southern Cross illustrates the fundamental problems with the outsourcing of public services to corporate bodies (BMJ 2011;342:d3535, doi:10.1136/bmj.d3535). Its crisis originated when it was bought by private equity firms, which buy companies, like Southern Cross, that own unmortgaged land and buildings. After selling, leasing back, or borrowing against these assets, they dispose of the company, now saddled with debt. Their aim is to extract rather than to add value. Any publicly listed company may be a target because its shares can be acquired on the stock market.
Southern Cross is now threatened by insolvency. Despite pre-existing concerns about inadequate staffing levels, it claims it can cut 3000 frontline posts without harming quality of care. If this is true, the company has previously been charging councils, and residents who fund their own care, for unnecessary staff. The directors have announced cuts in nursing, catering, and cleaning jobs, but not in management pay rates, where savings would not further prejudice care standards.
The reason that any commercial enterprise exists is to make profits, and the over-riding duty of the directors, enshrined in company law, is to maximise the money the company generates for its …