Cadbury and the Rape of Britain's Real Economy

Cadbury’s future as a British owned confectionery manufacturer seems doomed, for reasons discussed in ‘The Rise and Fall of Management’. Cadbury’s management may well have sought to fulfill their legal corporate duty, as defined in the 2006 Companies Act, to have regard to the company’s long term future and to the interests of employees and other stakeholders rather than just the shareholders. But, despite the law, shareholders’ interests are widely held to be paramount, and in the face of a hostile takeover bid, management are driven to simply maximizing the price that can be obtained for Cadbury shareholders. In the frenzy of this battle to the death, they most probably have little time for anything else, least of all making chocolate.

‘The Rise and Fall of Management’ considers the issue of corporate ownership. A company, which is a legal entity in its own right, is unique among forms of private property. Shareholders’ ownership is also unique. Since the mid nineteenth century shareholders in public companies have enjoyed limited liability, which distances them from normal private property owners. In effect they own share certificates, rather than the assets of the company, and the share certificates entitle them to dividends and possibly capital growth, both of which are known to be at risk, plus the right to vote at general meetings of the company.

In the Anglo-Saxon economies, custom and practice has nevertheless, in spite of the law, accepted shareholders as absolute owners with no wider responsibilities for the company despite their privilege of limited liability. Directors have little concern for the long term future of the business except inasmuch as it affects shareholder wealth. And they exercise limited care for other stakeholders such as employees, despite what the law demands. In other areas of Europe, corporate governance is through two tier boards. In Germany the supervisory board of large corporations is composed of 20 members, 10 of which are elected by the shareholders, the other 10 being employee representatives. And the supervisory board oversees and appoints the members of the management board and must approve major business decisions, notably mergers and acquisitions. This obviously acts at least as a friction in deals which are not in the company’s, and its employees, long term interests.

Comparison of outcomes in the real economies of Britain and Europe are instructive. Manufacturing has maintained a far greater global significance in Europe, notably Germany and France, than it has in Britain. In industry after industry, in manufacturing and in distribution, British companies have been taken over by overseas manufacturers and subsequently been rationalized, in some cases altogether out of existence. This seems to be the route the confectionery industry is bound to follow. Nestlé took its share, now Kraft and the Hershey-Ferrero combination are circling over Cadbury. If Cadbury had a supervisory board with employee representation, its directors would be better able to exercise their legal duty to care for the long term future of the company and its employees. And in the long run that would be greatly to the benefit of the UK economy.

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