Magazine article Management Today

New Men for Old

Magazine article Management Today

New Men for Old

Article excerpt


Keeping managers up to scratch is the main definition of management itself. The currently popular principle of profit-centred managements, tied to targets, budgets and incentives, is a device for obtaining scratch performance. But nobody is perfect. The system fails, partly because some of its human components are faulty, partly because, while the top of the pyramid may be pressing hard on the slopes beneath, nobody much is pressing on the apex-and if the top management gets tired, what then?

Pressure can on occasion be exerted by non-executive directors and/or institutional shareholders (see STC and Beecham); but such intervention happens so rarely, and usually after so long an interlude of enjoyable under-achievement, that it can hardly loom large in the executive mind. What must loom, and these days with mushroom cloud proportions, is the threat of takeover. When a group of any size from GEC downwards (and possibly upwards) may be attacked, simple self-preservation should theoretically gird up the managerial loins.

According to one managing director, that's the magic answer: `The takeover sanction is a major contributor to corporate efficiency.' The author of that statement, Allen Sykes, writing in the Financial Times, goes further still: the sanction is so valuable, he argues, that the British economy is suffering from an excess (35% of the All-Share Index) of bid-proof behemoths.

The takeover sanction, such as it is, mostly works, if it does, by being applied; either because a successful bidder, like BTR moving into Dunlop, takes radical action to achieve radical improvement in results; or because, after the bid fails, the escaped target is galvanised, none more electrically than the Courtaulds of the early 1960s by the ICI onslaught, into new heroics, often under new men. But neither result is guaranteed. In the majority of cases, the victim performs either worse or no better after takeover, while escapes may either never reform or suffer relapse.

When actually used, then, the takeover sanction is erratic in its results. As a vague or even concrete possibility, the threat is all too easily ignored by the kind of managements whose sleeping sickness caused the danger in the first place. Nor is there evidence that bid-proof companies perform any worse than the biddable 65%. On the contrary, the unbiddable J. Sainsbury has an outstanding record which is visibly founded on exceptional management.

Proprietorial management, whether bid-proof or not, has generated most of the great sagas of growth and efficiency, from Hewlett and Packard to Marks and Spencer, from the Watsons of IBM to the Quandts of BMW. It's much easier to run a business as if it were your own when it effectively is. But here, too, there are no guarantees. Two-thirds of Underwoods was owned by directors and their families; but that didn't prevent the management mish mash which led to losses and the every-ready arms of Boots.

But Sykes believes that they order things better in other lands; there, equity financing is far less important than in Britain and the US, and nearly all companies are bid-proof, protected by banks which both own the corporate debts and invest in their clients' equities. The existence of these bankers, with their deep vested interest, is `a formidable restraint on inefficiency', writes Sykes. …

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