UK: EDITORIAL - MATTERS ARISING FROM 1995'S AGENDA.

UK: EDITORIAL - MATTERS ARISING FROM 1995'S AGENDA. - Looking back at 1995 three key management issues stand out. One was in the forefront of media coverage, although it generated far more heat than light. The second has been rumbling along for some time

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Last Updated: 31 Aug 2010

Looking back at 1995 three key management issues stand out. One was in the forefront of media coverage, although it generated far more heat than light. The second has been rumbling along for some time but only achieved critical mass this year. The third is probably the most complex problem that managers have had to confront in decades.

The first is corporate governance. The majority of shares in most major British companies are firmly in the hands of institutions which take little proprietorial interest in them. In other words the companies have no effective ownership. So who should set their goals, and what should these goals be? The RSA's report on 'Tomorrow's Company', the Myners Committee and other august bodies considered and recommended, but it was the 'fat cats' and their salaries which became the focus of the debate. Discussion of the relative importance of different 'stakeholders' simply dissolved before the assault on the likes of British Gas's Cedric Brown. Until it's clear to whom boards must answer, and according to what criteria, business will be at the mercy of uninformed critics with a penchant for knee-jerk reactions.

The second issue concerns wider recognition of the concept of shareholder value. Assessing companies according to their ability to use capital to make more capital is hardly rocket science. Many companies established appropriate measurements and began using them as a basis for operational decision-making several years ago - Lloyds Bank is notable as a company which has outperformed its peers because of its awareness and application of such measures. This year the bandwagon picked up speed, bringing a spate of share buy-backs and special dividends. Managements that prefer not to focus on shareholder value not only risk making poor investment decisions, they may in future find their performance is judged against criteria which they are not monitoring.

The third area is the changed relationship between the employer and the employee. Companies no longer believe that they can offer employees job security or stability. 'Drive cost out' is the battle-cry, for in an environment of prolonged low inflation cost can be more easily understood. The result has been delayering and downsizing, leaving many redundant and those who remain dazed and bewildered. The situation is not made any easier by the fact that almost everybody who is asked to manage the process is also part of it: those exploring the new employment code are usually still trying to come to grips with its implications for themselves. Cynics can dismiss many upheavals in the world of management as faddish recycling of the ideas of previous generations. This one is different: the old-style employment contract cannot now be recreated. As we leave 1995 the problem is visible everywhere. The solution is not.

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