5. Evidence on enterprise governance and sustainability

Tomorrow's Owners: Stewardship of tomorrow's company.

_____

Hall, Peter and Soskice, David (2001). Varieties of Capitalism. New York: Oxford University Press.

VOC is very interested in corporate governance, with a particular focus on shareholder vs stakeholder approaches to governance.

p338
"A widespread view is that, since international capital markets are increasingly dominated by diversified portfolio investors (such as mutual funds and pension funds) seeking higher returns, companies must adopt the shareholder model or be starved of the external capital needed to invest and survive."

p.350 - chapter titled 'impact of corporate governance on product market and innovation strategies'

p359
"The British company is dominated by a CEO with strong performance incentives linked to share price, owned by dispersed portfolio shareholders interested mainly in shareprice..."

p339 - argue that primary corporate goal of UK companies is profitability, whereas in Germany, which takes a more stakeholder model, it is multiple goals, including profitability, market share, and employment security.

Still, nothing to say on governance and the distribution of wealth.

______

http://money.ninemsn.com.au/article.aspx?id=647198
Fund managers meet executive directors twice a year for an hour and expect to understand what is going on.

By Luke Johnson , Financial Times, 14 Oct 2008

There is another victim of the credit crunch: the publicly traded model of ownership. The near-collapse of many of the large banks in perhaps a dozen countries shows that such corporate structures do not work.

I have served on the boards of various public companies for more than 20 years and most such constructs were dysfunctional.

Professional investors have stakes in 100 companies or more and expect to have real insight into all of them: a fantasy. Meanwhile, the top directors of a large public company can spend a fifth of their time visiting hundreds of actual or would-be shareholders.

On stock markets the mad gyrations of a share price during a few days can determine the destiny of an institution that has been going for 200 years. If their shares had not imploded, would the government have stepped in to save RBS and the others?

How can anyone run a business when hedge funds trade big chunks of their equity every day?

I believe private ownership allows a more stable, long-term approach to wealth creation. Highly geared leveraged buy-outs may suffer in the coming downturn, but family or employee ownership offers advantages over the volatility of quoted companies. There is less minute-by-minute exposure to external scrutiny, and less obsession with immediate valuation. Organising such ownership structures for banks would not be easy, but it might lead to a healthy state of affairs.

lukej@riskcapitalpartners.co.uk The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm

http://www.ft.com/cms/s/0/73110d3c-4185-11dd-9661-0000779fd2ac.html

Tomorrow's Owners, by Tomorrow's Company

public ownership

Definition 1
see public company.

Definition 2
Government ownership and operation of an enterprise for the public good.

Public Company:

A company which has issued securities through an offering, and which are now traded on the open market. also called publicly held or publicly traded. opposite of private company.

Private company
A company whose shares are not traded on the open market. opposite of public company.

This content can be found on the following page:

http://www.investorwords.com/3932/public_company.html

• Research from John Oliver found that 'radical organisations have a tendency to evolve into post-democratic organisations over time. They transcend and include democracy, reintegratng hierarchies and structures.'
  

Co-ops - the cons

Is The Rise and fall of St Luke's ad agency related to its ownership structure?

St Lukes (all bullets from John Oliver's presentation of his own research)

• Spin-Off of Chiat/Day LA, already a radical company (Agency of the Decade).
• New Start-Up, 1995 – 30 people, 5 core founders.
• Co-operative
• Experimented with 2 Business Units
• Internal Market Hybrid
• Now 50 people, original founders have left.
• Progressive allocation of shares + ownership model

• Total creative freedom, from spontaneous structure.
• Co-operative, democracy.
• Shareholder value and responsibility – 90’s Zeitgeist.
• Boundry-less workplace. Hot desks.
• Latest collaborative technology tools.
• Structure turned outwards, based around clients.
• Peer and 360º team assessment.

• Growth: From 30 to 100+ in 4 years
• Awards: UK Agency of the Year in 1997, £75m turnover.
• Satellite offices: Sweden, India, France
• Achievments: Top Tier Clients, IKEA, BT.
• Media Profile: Articles (HBR), documentaries (BBC), Books.

• Consensus culture, 1 person / 1 vote.
• AGM attended by all employees.
• No single central power figure.
• Unconventionality, rituals.
• Open expression of emotions.
• Personal development – sabbaticals, ‘make yourself interesting fund’.
• Ecology values, role in society.

• Increased risk aversion.
• Consensus inertia, risk aversion.
• “I can say no to this task, because I am an owner”.
• Empowerment distorted - Experience [fn.] Influence.
• Hanging on to previous success attribution.
• Progressive HR policies taken outside of original spirit: Sabbatical time equivalent paid in cash.

• International expansion held back.
• From
  
• £5m turnover in ‘95 to
• £85m in ‘98 to
  
• £7.5m in ’05
• Founder Andy Law left to create sole ownership company.

• Scale of success boosted by buzz around its image.
• “A ship is safe in a harbor. But that’s not what ships were made for”. Mutual-fund mindset, rejecting risk, edginess, daring, difference.
• Consensus structure couldn’t manage the downturn.
• St Lukes still today represents a different working culture, and strong values.

http://www.thersa.org/projects/tomorrows-business/tomorrows-investors

Most people in the UK own shares. We own them not only in our own names, but also through our investments in pension companies and investment funds, a capital stake amounting to more than £500 billion in UK markets alone.

This democratisation of share ownership has changed the way public companies are owned. As recently as the 1970s, corporations were controlled by handfuls of wealthy individuals. Now, taken together, ordinary investors own large stakes in many of the biggest companies in the world.Yet despite high profile scandals, increased criticism of the behaviour of some hedge funds, and widespread public dissatisfaction with boardroom pay raises, we largely remain passive and uninformed owners. As a result, people often find themselves with shareholdings that conflict with their interests. And the corporate system has a vacuum of power at its very centre.

If you have any queries, or if you would like to participate in any part of the Tomorrow's Investor project, email Rowland Manthorpe.

The Tomorrow's Investor survey was completed by 225 fellows.

66 per cent of respondents felt that they did not want to be more involved in the financial management of their indirect shareholdings.

49 per cent felt they did not want to be more involved in ethical management.

However, the vast majority of respondents felt that public companies would benefit from greater investor involvement. 59 per cent felt that ethical management needed investor input; 47 per cent felt that this was the case with financial affairs.

http://en.wikipedia.org/wiki/Participatory_economics

Participatory economics, often abbreviated parecon, is a proposed economic system that uses participatory decision making as an economic mechanism to guide the production, consumption and allocation of resources in a given society. Proposed as an alternative to contemporary capitalist market economies and also an alternative to centrally planned socialism or coordinatorism, it is described as "an anarchistic economic vision",^[1] although it could be considered a form of socialism as under parecon, the means of production are owned by the workers. It emerged from the work of activist and political theorist Michael Albert and of radical economist Robin Hahnel, beginning in the 1980s and 1990s.

The underlying values that parecon seeks to implement are equity, solidarity, diversity, workers' self-management and efficiency. (Efficiency here means accomplishing goals without wasting valued assets.) It proposes to attain these ends mainly through the following principles and institutions:

• workers' and consumers' councils utilizing self-managerial methods for decision making,
• balanced job complexes,
• remuneration according to effort and sacrifice, and
• participatory planning.

Albert and Hahnel stress that parecon is only meant to address an alternative economic theory and must be accompanied by equally important alternative visions in the fields of politics, culture and kinship.

(this sounds very messy to manage)