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Silver & Browne: How shareholders rule

If 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

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bully has been replaced by calm and control.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

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.

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