RSS feedsIf anybody ever suggests to you that change is something that is difficult to bring about in a business culture, then simply point them to the history of the rise of corporate governance in recent years. It has been astonishing. Just 15 years ago what became known as the Cadbury Committee was formed. A year later it reported.
The conclusions of that first report seem simple and modest today. But they laid the foundations: chairmen and chief executives ought not to be the same people; it should be clear why particular non-executive directors are being appointed; and so on. It was a plan for what are now seen as obvious structures of accountability.
It is startling to think that the Cadbury recommendations were seen, in the context of those times, as revolutionary. They now seem almost mundane. And that is the strength of the change in corporate culture that they set in train. The change is now so embedded that no one, even across a 15-year period, thinks of any of it as strange or new. It is simply how good companies protect themselves and prosper.
Even more startling is what went on before the Cadbury revolution. It is hard to believe that a figure like Robert Maxwell ever existed. In that 15-year period we have gone from Long John Silver to Lord (John) Browne. The piratical bully has been replaced by calm and control. And it is the change in the culture which has brought about the triumph. People like Maxwell would simply not be tolerated now. It would be impossible for a bullying crook to force his way to becoming the head of any sort of large corporate organisation. People who are described by the press as being ‘larger than life’ can still flourish. What has changed is that the people who always attracted the tag of ‘a lovable rogue’ can no longer last any length of time at all in the public eye.
And it is also interesting to remember the real trigger for this. It was pensions. Maxwell plundered the pensions of his staff and that was what created the outrage. And it is pensions, in a curious way, which has driven the subsequent corporate governance revolution. Companies are run, so the theory goes, for their shareholders. And who are these shareholders ? Invariably they are pension funds run on behalf of ordinary citizens. So who, in theory, owns and ought to have a say in the running of companies? Ordinary citizens, you and I.
There is just one problem with this analysis. The world outside has yet to catch on. But it slowly will. And the consequences for the way the business world is perceived are huge. But, fortunately, the corporate governance work that enables all this to function more or less sensibly has already been put in place. This is the other reason why the corporate governance revolution was, and is, so important.
This is underlined by a new book, which explains how all this is working and refers to the people concerned as “the new capitalists”. This is how the authors explain it: “Each pensioner owns a tiny sliver of vast numbers of companies. From IT pacesetters in Silicon Valley to the oil wells of Nigeria, from breweries in Mexico to the chemical giants of Germany, citizens collectively are now the ultimate owners”. The argument in the book is that “until recently, this historic transfer of ownership has been effectively immaterial – a peculiar factoid, rather than a development of general significance to companies or countries”. But it has happened. And, although it is only slowly seeping into the collective consciousness of the world at large, that basis of understanding will grow.
The interesting twist in this is that, of course, there are two speeds of movement towards that understanding. There is the US and then there is the UK, Europe and the rest of the sophisticated business world.
Sir Adrian Cadbury made the opening short speech at the launch of the book and his theme was a simple one. He talked of the emphasis on information, the ability of the ordinary citizen to understand it and of the tremendous changes we have seen and will continue to see. And talking to him beforehand he remarked on the difference between the corporate governance frameworks of the US and the rest of the corporate world. In America, as the endless run of criminal trials confirm, they don’t, as the politicians would say, “get it”. CEOs still appoint chairmen. Where is the corporate governance in that?
So much of corporate governance in the US reflects the fact that the country has a huge internal market and companies, therefore, do not have to take into account what goes on beyond their ocean boundaries. So the prevailing views remain mired in the past. It is an odd contradiction. America, popularly seen as the home of business, is going to be the last place to comprehend the changes that the new order has brought.
