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Institutional Activism
associated with, and it creates all sorts of problems.
For instance, I read in a recent code of corporate
governance (I think it is the e-code of corporate
governance) that it is the duty of a board
to drive the company’s enterprise forward – or
words to that effect. Now, that is something that
nobody in America or Germany would even begin
to understand.
It is not, in my opinion, the duty of the board
to drive a company forward. That is the duty of
the management, and by having unitary boards
we fail to make this distinction between the management
and the board. This is a very serious
shortcoming and I am not sure how we can remedy
it, but it is something which is the kernel of
this whole discussion.
So this is another problem which comes from
the fact that we have unitary boards in this country.
It is quite difficult to know exactly which hat
a director is wearing at any particular moment.
In the United States, he knows exactly which hat
he wears because there is a distinction between
the management and the board. For instance, I
served on the boards of a number of very large
American corporations, bigger than GEC, and I
remember that I used to receive the company
accounts, which were submitted to the stock
exchange by fax, the same day that the press
receive them. They were not shown to the board,
and board did not vote to pass the accounts. The
audit committee did, but the board as a whole did
not pass them because it was not the function of
the board, it was the function of the management
of the company. This may no longer be so under
the new rules, but certainly it was so some time
ago.
In conclusion, can I just say this: I am sorry I
have rambled across the borders of the subject as
well as the core of it, but I want to be clear on one
point. We have to be very careful in using this
word “governance.” I think Alastair and Paul
have both drawn attention to the fact that it is a
word dredged up from the distant past.
Governance means wielding authority, which
probably should be delegated, and this is a very
complicated subject because once you delegate
authority you have to be fairly vigilant in pursuing
those to whom you have delegated it. Yet you
must not go too far in this, as you could start
destroying a business by constantly attacking it.
The people who run a business are as good as
they are, and in the capitalist word there are
always good managers and bad managers. The
only way you could improve a company from the
outside is by changing the management, which is
again a risk because you may find that the man
you put in, whom you thought better than the
one you turf out, is in the end a worse post-holder.
I think this element of risk pervades the whole
of the discussion. There is a risk in investing,
there is a risk in teaching from the outside, as it
were; there is a risk even in replacing because
you may find that the replacement is less good
than what he or she is replacing.
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