Moving beyond shareholder value needs a new image for a successful company
Displacing “shareholder value” as the ruling doctrine of large companies requires a new image of what an admired company should look like.
Having looked first at the problems with the way large UK PLCs are run and then at the explanations, our series of blogs on the TUC’s book on reforming corporate governance – Beyond Shareholder Value – has reached the point where we can ask the question “so what is to be done?”.
Certainly there is no shortage of suggested answers from the contributing authors. Those suggestions are wide ranging, in essence, of four kinds: change the people who make decisions at the top of corporations; change the group they must answer to; change the incentives (carrots); change the rules (sticks). Most proposals for major reform probably contain some combination of these four elements.
Yet it seems to me that whatever mix of ingredients you might go for, there is nothing here that threatens to displace “maximising shareholder value” as the doctrine that guides the way that UK PLCs are now run.
This observation is partly a matter of logic. Whether you put workers on the remuneration committee, create the possibility of voluntary stakeholder boards or widen the composition of regulatory bodies to include, say, consumer representatives – if you do any or all of these, individual corporate decisions may be challenged and sometimes changed but in themselves, the overall doctrine remains untouched.
Similarly, changes to the rules about voting rights in takeover battles, or say to corporation tax so as to favour investment over share buybacks – in specific cases and situations these will make a difference, but they do not displace the doctrine of shareholder value. Rather, they will be just be factors that have to be taken into account by the senior executives in their relentless pursuit of the doctrine. Whether a minor inconvenience or a damned nuisance, they won’t change the game.
If shareholder value is to be displaced, it will be by a new “big” idea of what people at the top of large corporations should be doing and how their success should be seen. If proof of this is needed, it lies in history, in the fact that in becoming dominant, shareholder value itself had to topple an earlier big idea.
In this former age of “managerialism” (1930s to 1970s), successful senior executives were those who turned humble companies into corporate giants and corporate giants into veritable empires, vertically integrated (in-house supply chains) conglomerates operating in many sectors and across continents. This was an age of national champions, household names: ICI, Unilever, the British Motor Corporation, Tate and Lyle, and Cunard to name but a few.
Public corporations mirrored this sprawling gigantism: until the late 1970s, London’s monopoly public sector bus and train operator baked its own pies (“Griffin” brand) for sale in staff canteens. It also ran its own international transport consultancy.
Whatever the rules, incentives and groups with whom a senior executive had to negotiate, including often powerful shop floor trades unions, the game was clear. Yet over a 20 year period, shareholder value toppled managerialism, one big idea eventually giving way to another.
One idea that might be on a par with shareholder value is “stakeholding”, the doctrine that companies should take a much wider range of ends into account in making their decisions. Environmental concerns constitute one such group of ends. The “long term” can be seen to constitute another. Stakeholding is discussed in the TUC book, but only as one among many. It certainly doesn’t occupy the kind of central position that Will Hutton succeeded in giving it for a time in the mid-1990s.
Stakeholding’s potential 20 years on is uncertain, but it still deserves a prominent position (which it did not enjoy in the TUC book) as a yardstick against which to measure other proposals. First, it reminds us that a big idea is required. Second, it is a big idea about the “what” – about what should be different, that corporate decisions should reflect a wider set of interests and goals than is the case under shareholder value.
Third, we may ask the question as to how success under stakeholding (or a different big idea) is to be measured. Regular statistics exert pressure, both as a measure of performance and as a definition of success. The statistics by which shareholder value is measured are legion. The means by which they are communicated to corporate chiefs, from comment in the business pages through to face-to-face meetings with analysts and fund managers, are relentless. Moving beyond shareholder value requires that this pressure be diluted and pressure serving different ends promoted in its place.