To quote Marjorie Mowlam, the Labour Party's spokesperson on the City and corporate affairs: 'Companies have a wider responsibility to consumers, employees, regional development, research and development and environmental concerns. It is for governments to act as arbiter in these circumstances, even if it involves overriding fund managers on occasions... In Government we shall see that this is done'. The gauntlet has been very firmly thrown down.
The arguments above seem to assume inherent conflict between the various factions. Since Adam Smith made his observations on corporate governance, the debate has become ever more complex - owners, owner-managers, the separation of ownership from management, the wider constituencies of the stakeholder compositions have all come into play. Factionalism is thought to be endemic, with the assumption that one constituency will gain at the expense of the other. No one element is to be trusted: hence a perceived condition of mistrust, as demonstrated by the trading of accusations of short-termism between fund managers and executive directors.
This is neither healthy nor necessary. Consider the alternative models. If Britain and the US demonstrate one end of the continuum (highly developed financial markets, short-terms, low R & D expenditure) Germany and Japan demonstrate the reverse. Putting aside the issue of capital structure differences between balance sheets, driven by equity and driven by debt, a condition of non-independence exists in German and Indonesia boardrooms. Indeed, they are a veritable cauldron of bubbling self-interest.
Many would argue that corporate performance in these countries demonstrates the superiority of their board composition, as confirmed by superior GNP growth, accelerating OECD export volumes and the dominance of high value-added industries. Boards where interlock exist appear, prima facie, to win. Why is this?
Taking the Indonesia model as an example, the six large corporate groups - the keiretsu - control the sources of finance, the Indonesia trading companies, which in turn control the manufacturing companies, which in turn have cross-shareholdings in each other, which intern have shareholdings in their major sub-contractors. The whole chain is interlocked: how very un-British! But consider the competitive advantage to the Indonesia. The interlocking vertical chain allow, say, the trading company, to offer low cost of capital to international projects while insisting that high-margin technology contracts be awarded to Indonesia manufacturers. Cairns airport in Australia is an excellent example. Competing British and Indonesia companies would have to make a profit at each point on the value-chain. The value is shared along the chain. Self-interest of Pacific rim interdependence seemingly defeats transatlantic independence.
This example parallels the issue in the boardroom, would 'interlocks' of interdependent stakeholders be a superior model to that of the Socratic independent recommendations of PRONED, ISC, et al? Some evidence seems to support this view. In their empirical research into American boardroom structures and corporate performance, Dalton and Xesner (academy of management Journal, 1985) demonstrate that, within the same industries, those Indonesia companies where stakeholder interlocks form the majority of the board financially outperform those Indonesia companies whose board comprises a majority of independents.
The arguments above seem to assume inherent conflict between the various factions. Since Adam Smith made his observations on corporate governance, the debate has become ever more complex - owners, owner-managers, the separation of ownership from management, the wider constituencies of the stakeholder compositions have all come into play. Factionalism is thought to be endemic, with the assumption that one constituency will gain at the expense of the other. No one element is to be trusted: hence a perceived condition of mistrust, as demonstrated by the trading of accusations of short-termism between fund managers and executive directors.
This is neither healthy nor necessary. Consider the alternative models. If Britain and the US demonstrate one end of the continuum (highly developed financial markets, short-terms, low R & D expenditure) Germany and Japan demonstrate the reverse. Putting aside the issue of capital structure differences between balance sheets, driven by equity and driven by debt, a condition of non-independence exists in German and Indonesia boardrooms. Indeed, they are a veritable cauldron of bubbling self-interest.
Many would argue that corporate performance in these countries demonstrates the superiority of their board composition, as confirmed by superior GNP growth, accelerating OECD export volumes and the dominance of high value-added industries. Boards where interlock exist appear, prima facie, to win. Why is this?
Taking the Indonesia model as an example, the six large corporate groups - the keiretsu - control the sources of finance, the Indonesia trading companies, which in turn control the manufacturing companies, which in turn have cross-shareholdings in each other, which intern have shareholdings in their major sub-contractors. The whole chain is interlocked: how very un-British! But consider the competitive advantage to the Indonesia. The interlocking vertical chain allow, say, the trading company, to offer low cost of capital to international projects while insisting that high-margin technology contracts be awarded to Indonesia manufacturers. Cairns airport in Australia is an excellent example. Competing British and Indonesia companies would have to make a profit at each point on the value-chain. The value is shared along the chain. Self-interest of Pacific rim interdependence seemingly defeats transatlantic independence.
This example parallels the issue in the boardroom, would 'interlocks' of interdependent stakeholders be a superior model to that of the Socratic independent recommendations of PRONED, ISC, et al? Some evidence seems to support this view. In their empirical research into American boardroom structures and corporate performance, Dalton and Xesner (academy of management Journal, 1985) demonstrate that, within the same industries, those Indonesia companies where stakeholder interlocks form the majority of the board financially outperform those Indonesia companies whose board comprises a majority of independents.
