Some years after the global financial crisis and it would seem that not much has changed in the fundamentals of how business leaders are doing business. Excessive rewards continue to dominate the headlines and there has been no systematic and comprehensive adjustment at the top of big business.
The manifesto that follows addresses the changes to leaders and leadership thinking that has to happen in business if it is to be a positive force in the 21st century. If we are to nourish and sustain the operation of a positive market economy then the public policy agenda needs to embrace these precepts:
Promote civil ownership of capital, not social ownership
By this I mean that we have to recognize that the market is the most effective mechanicism for wealth creation for society as a whole. The state is the least effective owner of capital as it is not driven to ensure that the capital maximizes its return. We have to develop ways for people to translate savings into funds with economic influence which allows ordinary savers and investors to bring their interests and concerns to the fore.
Promote a share-owning democracy that ensures that all owners can influence outcomes, not just a few
Remove the rights of fund managers to vote on company resolutions without consultation with those whose money is invested in that fund. Impose the same requirements on banks and other financial advisors who operate as ‘ nominees ’ for the owner of the capital invested.In addition, where pension funds are involved, impose a requirement on trustee boards to agree their voting position - not to abdicate it to fund managers and advisers.
Reform reporting and audit
Ensure that reports and accounts are transparent and enable all shareowners to make decisions with real information. Have one set of standards and take a stand to impose them through regulation with teeth. Make remuneration reports freely available, more detailed and make votes on them binding on the board rather than advisory.
Reform takeover rules
Require organizations to gain approval of their own shareholders for takeovers as well as those of the target organization, regardless of the method of funding and regardless of domicile of the acquiring company.
Review the treatment of debt funding for takeovers. For large multinational businesses, try to harmonize taxation treatment such that business can no longer play one country off against another to grow profitability on the basis of taxation treatment, but ensure they focus on growing profitability by doing their core business as well as they can.
Reform the process for the appointment of non – executive directors
We need to take away the role and influence of recruitment firms in the appointment of non-executive directors. Public companies whose share capital is available for the public to buy must advertise openly for non-execs. Larger organizations should be encouraged to consider reserving a non-executive position solely for smaller shareholders to ensure that the full range of owner interests is heard at the board table.
Re - examine the rationale for and assess the impact of the introduction of the concept of the limited liability partnership (LLP)
After twenty years there needs to be a full review of the use made by advisory firms of the LLP structures. How much have partners benefited from the taxation treatment? Has little or no liability changed the risk profile of the advice given and the behaviour adopted by advisors to the detriment of owners and other key stakeholders?
Does size matter?
The G20 needs to come to a political consensus on the question of whether or not the question of size should apply just to banks or to all organizations regardless of industrial sector. There are some sectors of the world economy where a few massive global organizations could potentially dictate to the market the terms on which they will trade and there are some activities where size and the distance between managers and activity is so great that major risks are unseen and potentially highly damaging: BP’s oil drilling disaster in the Gulf of Mexico in 2010 is a powerful example of this, impacting on a major global economy and, even more adversely, on its shareowners.
If the 19th century was the age of political empire then the 20th century was the age of economic empire. But these structural changes could help the owners of businesses regain control from management and would constrain risk and encourage greater innovation. They would also redress the balance of power between business and society.
‘The Cult of the Leader: A Manifesto for More Authentic Business’, (Wiley, £18.99) by Christopher Bones was winner of the CMI Management Book of the Year award , held in association with the British Library.