It is my opinion that good corporate governance is essential to the effective running of a business. The phrase “The unacceptable face of capitalism” has been bandied around a lot recently, most notably with the faces of Sir -currently-Philip Green and Mike Ashley being the most prominent “faces” criticised by the press. In both cases, they have been accused by the press and parliamentary select committees of forsaking their duties of care, responsibilities and (seemingly) any concern for past or existing employees – Sir Philip by exiting BHS and leaving it to a thrice bankrupt businessman when there is a massive pension scheme deficit to fill and Mr Ashley by employing business practices that most readily bring to mind Ebenezer Scrooge and Bob Cratchit!
Yet both BHS and Sports Direct will have corporate governance codes in place that will have cost thousands of pounds to prepare, draft and agree with HR, lawyers, boards of directors, PR companies etc. In that, they will be in common with virtually any business (of any significant size) in the country. Yet by and large the issue of corporate governance only surfaces when things are going wrong or have already done so. Corporate governance is like the kid always picked last at sports, stuck out on the wing and ignored until there is a need to show inclusivity/diversity/caring: for most of the time it is just not a factor that high up the business radar – until things go wrong.
The Cult of the Leader
There are, I believe, two main factors for this. Firstly, the cult of the “leader”- and generally the alpha male or female in that role – has assumed almost messianic proportions over the last 50 or so years – as reflected in the staggering growth of CEO packages when measured as a ratio against the average earnings of their staff. Are the current CEOs really that much better than their predecessors? Certainly, there are never any shortages of books/magazine articles telling the world how great they are, especially in the USA, UK and western Europe. Even remuneration committees tend to play it safe, not wanting to upset the “talent” and generally acquiescing to perceived market conditions rather than questioning them. In a lot of cases – Tesco and Manchester United being recent ones that spring to mind, you would have to say that the timings of the departures of CEOs Terry Leahy and David Gill were impeccable (for their own reputations) but left their successors with a myriad of problems to sort out.
The Speed of Success
The secondary factor is the speed that success has to be delivered. Clearly, one of the best examples of this is the Premier League – a UK product that, by any standards, is a huge global success story with massive amounts of television money, global branding, merchandising and ticket prices giving British football clubs the kind of spending potential that would have been unheard of even 10 years ago. The flip side of that, of course, is that the pace of growth gets faster every season and it is no longer unheard of for a British club to have three or more managers in a season often to little, if no, avail. It took Sir Alex Ferguson until his fourth season in 1990 at Manchester United to win a trophy – the chances are that he would have met the fates of his successors and been shown the door a lot earlier than that nowadays. The City is also looking for similar speed of return – private equity investors and venture capitalists are not, normally, the most altruistic or forgiving of folk!
What Makes for “Acceptable Capitalism”?
Which brings me back to my main point – what do we, as individuals, want from the companies we buy from and work for? What makes for “acceptable capitalism”? At the very least it strikes me that there have got to be signs – and real obvious signs – that a company really cares for its employees. The Sunday Times Top 100 companies to work for should be used as a challenge to other companies. Shareholders should also look to vote with their feet, particularly the big institutional shareholders like pension funds which should be doing far more to curb unreasonable executive pay and miserable working conditions. In the main capitalism works because for most people, through the centuries, there has been enough spending power that filters down from the top to enrich and improve each generation compared to the one before it. For the first time, we are seeing that break down and seriously curtailed which is why meaningful corporate governance looking at how a privileged few are creaming off an unprecedented level of pay and the short-term periods of assessment they are being measured against is urgently needed.
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