Milton Friedman is given a rather severe critique in The Rise and Fall of Management, especially over his malign influence on industrial management, how it is taught and how it is done. The Friedmanism which best captures his contribution to that endeavour is the one which tells the world that ‘corporate officials’ have no ‘social responsibility other than to make as much money for their stockholders as possible’.
Category Archives: Shareholder Value
The focus on maximising shareholder wealth at the expense of the company and its other stakeholders
The Conservatives' Commitment to Mutualism and Co-operatives
This space is not habitually given to expressing party political views, but occasionally it is unavoidable. Political parties inevitably, from time to time, address head on, topics which are of prime concern here. And sometimes their approach is either so right, or so wrong, that comment is necessary if these postings are not to appear totally disconnected from the real world. Today is such an occasion.
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The Destruction of Accumulated Surpluses
The disposal of Cadbury is some kind of a marker. It was still a successful company and could have continued independently with no problem. It had a proud history which doesn’t need to be repeated here, but it also had a price. And that price was agreed by its board of directors who gained prodigiously from the sale. Cadbury’s loss of autonomy is surely the precursor of many cost reducing decisions taken at its new American headquarters without regard to the old Cadbury stakeholders, notably including its employees. Doubtless, in the end, Cadbury’s Bournville heritage will be preserved merely as yet another industrial museum, the dead remains of the once thriving industrial community. Such relics are strewn across the British landscape, commemorating our once pioneering roles in wool, cotton and silk textiles, machine tools, iron and steel, cycles, motor cycles, motor cars, trucks and buses, china and pottery and hundreds of other sectors where Britain was successful and achieved a strong position but then sold it off for the financial gain of the few and the bitter disadvantage of the many.
Entrepreneur to Deal Maker: the strategic manager’s progress
As recounted in ‘The Rise and Fall of Management’, from the earliest days of industrialisation down to the present day, perhaps one of the most striking step changes to take place has been the adoption of the strategic perspective. It was not till the mid 1960s that long range planning and what became known as strategic management received much overt attention. First in large companies, then among consultants and, finally, in academe, strategy became a dominant perspective, widely acknowledged as the lynch pin of management theory and practice.
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Earning the £Bn Bank Bonuses
Justification of bank bonus payments proceeds apace. Despite having in effect gone bust last year, and being only rescued as a publicly quoted company because the Labour Government was so paranoid about nationalisation, the directors of the Royal Bank of Scotland now wish to set aside £1.5Bn of tax payers’ money for next year’s bonus payments. Their argument is that unless the bonuses are paid, their most talented people will leave and they won’t be able to recruit in this highly competitive field. But it’s been said before that it was precisely these individuals who broke the bank. So why should the tax payer worry if they leave and aren’t replaced?
The Financial Reporting Council’s Complete Horlicks
The Financial Reporting Council (FRC)’s latest publication, “Proposed Reforms to the UK Corporate Governance Code”, is rather a waste of time. Changing an ineffectual and irrelevant code, even though at considerable expense to the tax payer, is hardly a matter of huge importance. And when the changes themselves are so slight they will have no impact at all on what is done, the significance is disappearingly small. But perhaps that was the intention.
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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.
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Justifying the bonus culture
Earlier this year it was reported in the national press that, despite the decline in its investments and fall in profit from £576m to £17m, the former mutual Standard Life’s chief executive, Sir Sandy Crombie, received £380,000 bonus on top of his salary of £754,000. Fellow director Keith Skeoch’s take was £1.3m while finance director David Nish’s take was £885,000.
The following extracts are from a letter, arguing the case made from a historical perspective in ‘The Rise and Fall of Management’, written to Sir Sandy Crombie asking how these payments could be justified:
Dear Sir Sandy,
The myth of shareholder value
The long standing fixation with creating shareholder value still persists just below the surface despite the current crisis. ‘The Rise and Fall of Management’ flags up the much broader responsibilities that directors have legally shouldered for the past 150 years, but if the City and top directors have their way, when the current crisis is over, it’ll be ‘back to business as usual’. Those directors will still be aligned with shareholders rather than customers and employees, and paying themselves extreme amounts of money irrespective of either short or long term performance. The bonus culture is regaining momentum and no matter how much the media and politicians berate the greed of City martinets, until action is taken to restrict or tax unwarranted bonuses, they will continue to be taken.
Free market capitalism vs company law
A key tenet of free market capitalism is that businesses should focus exclusively on maximising shareholder value and not allow other considerations, apart from compliance with the law, to intrude on their business activities. As demonstrated in ‘The Rise and Fall of Management’, approaches such as corporate philanthropy, corporate social responsibility and business ethics, are only justifiable if they add to profitability. This appears to be a clear and simple model for businessmen to work.
Fighting for Fairness by Remaking the Real Economy 