Magazine article Management Today

A Protected Species

Magazine article Management Today

A Protected Species

Article excerpt

A PROTECTED SPECIES In the great debate on takeovers Sir James Goldsmith and Sir John Harvey-Jones stand on opposite sides of the fence. 'I've never seen a really good company taken over,' says Goldsmith. 'I've only seen bad ones.' He pours scorn on agreed mergers. With equal derision Harvey-Jones whose scores of takeovers while he chaired ICI were agreed bids, espouses the opposing view: 'I know of no chief executive who believes that good performance in relative terms is a defence against hostile predators.' CBI director-general, John Banham, also endorses the sword, or rather gun, of Damocles: 'It is very important that management all the time is under the gun.' All three are speaking in a debate organised by the Association of Corporate Treasurers at the Bank of England around a topic clearly expressed by Banham: 'being acquired if you don't perform', he says, is 'an extremely valuable discipline'. The issue, and one which goes to the heart of every corporation, is who should apply the discipline -- and whether the current application is sufficiently firm to provide the necessary 'accountability'.

That is the chosen word of Jonathan Charkham, author of a panel paper on 'corporate governance and the market for control of companies' which the Bank of England published on the very same day as the debate. Charkham argues that there's nothing intrinsically wrong with the preferred Anglo-Saxon structure of the unitary board: it's simply that a potentially good system is worked badly, because 'strong people generally do not like being accountable.'

Too true, although weak people (from whom weak results are more likely to flow) are no less averse to discipline. How, then, can the system do its job? That function is clear enough: to ensure, in Charkham's words, 'the maintenance of competence at a satisfactory level'. Unfortunately, the words give little guide to what is 'satisfactory'.

As its latest results confirm, Glaxo, pressing the excellent Merck hard for top place among the pharmaceutical money-spinners, must have satisfied the most curmudgeonly shareholder. But do Glaxo's achievements mean that lesser performance merits a call to the headmaster's study?

British Petroleum is not regarded as one of the nation's managerial laggards. Yet its 1987 profits were down by one-third on 1985. BP is a relatively 'satisfactory' performer in the Management Today Growth League -- midway in last June's table, compared to the down-in-the-dumps positions of large companies like Boots, Hawker Siddeley, British Aerospace and GKN.

The League is especially relevant, because its positions are determined by the return to shareholders. High managerial performance is supposedly demanded in the interests of shareholders; ergo, a low return equates with los performance. In capitalist theory, that should be swiftly followed by retribution. The shareholder will turn to an alternative management. In capitalist practice, that discipline is seldom applied, largely because the shareholders are passive. Somebody must wield the stick on their behalf.

In the good (or bad) old days, that would certainly have been the board of directors. In the City, particularly, boards were entirely non-executive, and general managers reporting to the assembled nobility and gentry were no doubt given the occasional heaveho if they failed to perform. …

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