For whom should companies be run?

Thu 12 Sep 2019

By Brian Dennehy

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For whom should companies be run?

Not an unimportant question in the current times, as the fabulously wealthy have come under attack from ordinary folk who have lost sight of a hopeful future - and it’s a global problem.

For whom should companies be run?
Not an unimportant question in the current times, as the fabulously wealthy have come under attack from ordinary folk who have lost sight of a hopeful future - and it’s a global problem.

The greatest danger... is not to be found... in foreign affairs. No, it is here in our midst, close at home... the unnatural gap between rich and poor... the constant insecurity... here are the enemies.

The divide between two nations [rich and poor] is more than financial. It is physical.

The first quote is from Winston Churchill in 1909, “Liberalism and the Social Problem”. The second from Engels, writing about the condition of Mancunian working classes in the 1840s. Inequality is a constant - it always was, and always will be. But occasionally something needs to be done.
This blog was prompted by a recent statement from the Chief Executives of 181 major companies, led by JP Morgan’s Jamie Dimon. They all put their name to a (rather pompous?) statement which to most of the rest of us is a statement of the bleeding obvious. Here are some extracts.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.

I haven’t got a clue what a “stakeholder” is, it’s one of those bizarre modern buzz words which is vague enough to fit most situations where you are trying to appear serious-minded, but which escapes any useful definition.
Nonetheless, what they seem to be saying is “to this point we have been quite happily lining our pockets, but we think it’s all gone a bit too far now, in particular because the rest of you have sussed out what we’ve been up to. So we are prepared to make bland statements suggesting that you can also have some cherries off the cake, although we have no idea how you will do this, and really don’t care, but hope that, come the revolution, you will look kindly upon us”.
In this same statement were other ground-breaking aspirations:
  • Delivering value to our customers
  • Investing in our employees
  • Dealing fairly with our suppliers
  • Supporting the communities in which we work
Revolutionary stuff from Jamie and his multi-billionaire friends.
One media commentator, who shall remain nameless, but who is close to this multi-billionaire club, arrived at the stunning conclusion that:

It makes sense. With inequality a deepening cause of social conflict, companies need to make clear that they at the very least take the interest of their workers and communities into account.

Makes sense? It barely touches the issues.
A laissez-faire, hands off, approach to business works most of the time. But such an approach is self-evidently not working when a very large and growing number of the wider community are rebelling against inequality and lack of opportunity.
The way businesses are run should inspire broader social trends, but trust has broken down - and larger businesses are part of the mix, fuelling society-wide negative trends. These businesses cannot be relied on to change their attitude (beyond bland and self-serving statements such as the above), so government intervention will probably be required (whatever the hue of that government).
Of course, this is a shame, as we already live in the world which is vastly over regulated, and in many industries, it is a significant barrier to innovation. But not all regulation is bad, and in this area of corporate governance, regulation is long overdue.
If the economic recovery of the last 10 years, such as it was, and the more impressive recovery in stock markets, had been based on some fundamental innovation, improving the quality of life of millions around the globe, it would be much more difficult to argue for such regulation and reform.
But that has not been the case. There is nothing like the Gutenberg press of the 15th century, which literally and metaphorically revolutionised the world. The Internet as an innovation pales in significance next to this one.
Nor were there any innovations like the invention of steel nor electric lights, nor like antibiotics or the steam engine.
It was just simple financial engineering and smoke and mirrors which allowed the few to line their pockets while feckless central banks and clueless politicians stood by and watched.
In centuries past successful businesses tended to be localised, and this gave rise to great examples of corporate philanthropy, where the likes of George Cadbury, Joseph Rowntree, and William Lever literally built communities for their work forces.
But this kind of philanthropy, where Bill Gates is the outstanding example of our day, is not sufficient in a world dominated by global businesses and, perhaps not coincidentally, global angst.
This is just another part of the jigsaw which helps build a picture of the world in the years ahead - on which also see the original blog on helicopter money, and more recently on the Magic Money Tree and emerging policy options.
It is difficult to tell precisely how all of this will impact on your investment opportunities in the years ahead. But as new policies come more clearly into view, there should be plenty of opportunity for fund managers to undertake some old school company level research.
If there is more support for domestic economies, and more money in the pockets of consumers, this should be very positive both for smaller companies and sectors which typically come within the ambit of Value-style funds - on the latter do look at this week’s graphical analysis of Value vs Growth.
The opportunities will stretch far beyond the UK. As new global trends emerge, they should be captured by the Dynamic Global PortfolioAnd, of course, do not overlook the ultimate portfolio for identifying the strongest global trends – the Bonkers Portfolio!


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