I guess it will be interesting to see whether there is any pressure among backbench Tory MPs – or at least some of the more intelligent ones – for the government to try and edge out “Vince” Cable from his post as Business Secretary, following a terrible speech that has been monstered in many quarters, such as here, and here.
The funny thing is, had Cable said something on the lines of “risky gambling by banks and hedge funds has been a problem and has been encouraged by irresponsible central banks”, he’d have a very good point. Had he, in his attack on monopolies, attacked the regulations, taxes and other government moves that drive up barriers to entry, he’d also be correct. But he does nothing of the kind. He’s a sort of economist who, trained from, I suspect, neo-classical textbooks full of elegant supply-demand curves rather than real human beings, imagines that any market that does not have a vast number of identical players with no pricing power or edge is “imperfect”, and therefore in need of correction by government. He ignores how it is the very “imperfections” of the real world – such as differences in tastes, values, levels of knowledge and so on – that give markets their raison d’etre, as understood by the “Austrian” school, with its view of competition as a discovery process, not as a static game full of omniscient Gods.
In fact, the government actions that lead to less flexible markets continue to get worse, which is something Mr Cable seems not to be dealing with. At the moment, the Financial Services Authority, the UK financial regulator, is rolling out a programme of “reforms” called, excitingly, the Retail Distribution Review. The aim, which sounds very noble, is to raise the standard and independence of financial advice. The effect, however, will be to drive hundreds of financial advisors out of business – some industry figures predict that as many as 20 per cent of UK IFAs could go by the time the RDR takes full effect in 2012. This, of course, only worsens the problem of how financial advice is often something that ordinary UK citizens rarely use.
Here is something I wrote before on attacks on the City.
Well, just to do my impression of a stuck record, and annoy Alisa with my monomania, the model he is sticking to here is that of the traditional Liberal worthy of yesteryear; for example, having mentioned him a couple of threads down, Viscount (Port Sunlight) Leverhulme or the odious Joseph Rowntree. That is, the idea that businessmen are social leaders, pillars of the community, etc etc. Hence-
“Why do directors sometimes forget their wider duties”
-their “wider duties” being to be socially responsible like a good Victorian gentleman. Anyone motivated by making money is simply a low brigand; you’re supposed to make money “responsibly” and for the good of society, or some such rot. This is the garbage that the Liberal Party has always represented. The “enlightened businessman” is socialism personified. It’s what Cable and his ilk expect everyone in business to be.
Hate to say this, Ian B, but your impression of a stuck record is made even better when you double post!
I am firmly convinced that somebody else must be to blame for my ineptitude.
Indeed, IanB, which is why I’ve always abhorred the concept of “stakeholders”.* Directors are the stewards of the shareholders’ money, and their sole obligation is to get the greatest return possible on it. There may be rare instances in which spending money on some “socially responsible” activity can be justified in terms of return on investment, but for the most part it’s simply a waste of shareholders’ money just to feed the directors’ egos, and is every bit as reprehensible as politicians’ waste of taxpayer money on similar frivoloties.
* Someone here (I forget who) recently used that term to describe villagers with pitchforks hunting down a vampire. Very apt.
After reading of Cable’s various mouth foaming incidents of late, I remarked to my wife:
“By bringing in a coalition government incorporating the Lib Dems, it seems we’ve let a spaniel in the pantry”
No point in rousting Cable without rousting Huhne.
They are Death’s answer to Laurel and Hardy.
Ian: the second post must be by that other guy who thinks he’s you, and I refuse to be annoyed by him.
Cable’s speech was embarrassing. He took his long awaited chance of the limelight to prattle on about his political ideas like an idealistic sixth former invited by the adults to show they really do listen to what the young people have to say.
I cringed. It was like hearing William Hague give his 1977 conference speech today.
I think we sometimes spring to the defence of corporatism too swiftly. Yes it is nauseating to hear a politician moralise about the financial sector having no direct experience of it but we must rememeber that there is nothing whatsoever “Austrian” about our banking system.
It is the owners and senior managers of these banks that are to blame for our crazy funny money system and they have only achieved this with the help of corrupt and gutless politicians. Both deserve all they get, even if it is from Vince Cable.
What really galls is when they blame the traders or investors, who are entirely innocent in this regard.
The work of the Cobden Centre and in particular Steve Baker and Douglas Carswell in the House shows that bank owners and managers are to blame and do deserve our wrath.
The key task in competition regulation, which no-one has manged to effectively do so far, is to set limits to the unfair legal protection that companies seek to entrench advantage and encourage innovation, efficiency, price and service as the main drivers of competition between firms.
I haven’t read what Cable had to say, and as an American, might not understand it anyway, but…
I think Ian and especially Laird, are a little over the top here. Certainly a director’s job is act on behalf of the share holders, but even for shareholders profit is not the only thing. What would you have them do in your name? We would all answer that differently, but it’s a matter of degree I think.
The mistake in “wider duties” is to think that these duties include a responsibility to represent socially connected non-shareholders, partisan concerns, and government interests. Some people seem to see corporate officers as elected officials and think they are answerable to the voting populace rather than the voting share holder.
There’s another thought I can’t quite articulate, to the effect of: “We also can more easily maintain a free civil society which honors individual liberties if we make an effort to avoid generating negative externalities.”
I kind of like the idea of the socially responsible Victorian gentleman. I just think I should do it voluntarily with my own money.
In re-reading that, it seems more personal than I intended and I apologize to Ian and Laird. I was really just trying to identify what I was responding to rather than pointing fingers at anyone.
I liked your comment, John.
Johnathan Pearce fails to notice that Uncle Vince’s speech contained a proposal” to shift the tax base to property and land which…represent an extreme concentration of wealth”.
LVT is going mainstream : Andy Burnham,Diane Abbott Jon Cruddas, Vince Cable…..
“Mainstream”: you mean, LVT is being championed by the anti-property left. Actually, if I were a LVT advocate, I’d be a bit worried that such clowns were championing the idea. And with stamp duty and Council Tax, there are plenty of taxes related property values as it is.
John, you’re confusing doing “socially responsible” things with your own money with doing so with the money of others. Directors have a legal fiduciary responsibility to employ their investors’ money for the purposes intended in the most efficient manner possible. Their only obligation is to make the best possible return on investment. Acting offensively or illegally is inconsistent with that objective and obviously is to be avoided. But undertaking “feel-good” projects solely on the basis of the directors’ notion of “responsibility” is far beyond their mandate.
It is certainly true that for individual shareholders “profit is not the only thing”, but profit is (or should be) the “only thing” as far as those to whom they have entrusted their money are concerned. Distribute the earnings and let those investors make all the “socially responsible” uses of it they desire. Those uses just might not be the same ones the directors would pursue.
Emphasis on ‘legal’ mine. Who said that what is legal is also necessarily right? What if I and a bunch of other shareholders do want to re-define those ‘intended purposes’, to include any number of things, from preservation of polar bears to libertarian propaganda?
Again, only if by ‘should be’ you restrict your statement to the legal context.
Alisa, you can certainly do whatever you want with your money, including forming an organization and hiring directors to act on your behalf to accomplish those goals. Go save the polar bears if you like. But if you and a bunch of other investors create a company to build and sell widgets for a profit, that’s what the directors should focus on. Unless and until you (the collective “you”) instruct them otherwise, those directors have no moral or legal right to divert the company’s (i.e., your) money to the preservation of polar bears.
And how could they not? LVT is a statist wet dream. How any pro-liberty activists could think the LVT crowd were people to make common cause with has always mystified me.
But that is exactly what I mean (and what I presume John meant): the collective ‘we’ wants the company to produce widgets, but we also want the directors to contribute part of the profits to the preservation of gay hobbits…sorry, polar bears.
On LVT, it’s always worth remembering that George Bernard Shaw was converted to socialism by a talk by… Henry George.
Alisa, if the collective “you” did so, that’s fine; no complaint from me. In fact, this is rarely an issue with small business organizations such as you were postulating, since they tend to do everything by consensus anyway. The problem is with large public companies (which is primarily what we’re talking about here), where no such decision was ever made. The shareholders are never asked if it’s OK to use company resources to save the gay hobbits, ah, polar bears, the directors merely presume to make that decision on their own initiative. And the “stakeholder” crowd cheers them on, in the misguided belief that a business organization must somehow “give back” to the community, as if providing jobs, paying taxes, making a desirable product, etc., weren’t “giving back” enough. Doing so without express shareholder authorization is, in my opinion, a gross breach of their fiduciary duty.
Sure Laird, preaching to the choir there, but: you seem to have been rebuking John’s point (which, again, I presume to have been similar to mine) with words like “should”. The current practice as you describe it can be seen as a simple breach of contract (the one between the directors and the shareholders). What I’m saying is that under a different contract same practices would be just fine. And, BTW, the size of a corporation would be completely irrelevant.
And to clarify, the reason I am banging on about this is also one of the main reasons why spreading “our” ideology is proving difficult, in that it too easily lends itself to the construction of the well-familiar straw man: “Those damn stone-hearted, endlessly-selfish capitalists are only interested in money, and couldn’t care less about the disadvantaged brown polar hobbits”. This notion is so deeply entrenched in the collective Western psyche, that even many on “our side” came to believe in it, while it could not be any further from truth.
And the reason I’m banging on about this is precisely because it is a straw man, one glommed onto and perpetrated by people like John. The looters of this world want to dress up their claims to the assets of others in moral terms, as if theft can ever be morally justified. That’s the fundamental problem I have with the “stakeholder” ideology: the idea that just because you believe some activity to be socially beneficial gives you the right to demand that someone else pay for it, whether that “someone” be shareholders or taxpayers. It’s fine to ask for voluntary support; it’s offensive to demand it as of right; and it’s blatantly dishonest to seek (or pay) it indirectly, via politicians or fiduciaries.
That should have been “perpetuated“, not “perpetrated”, in the first sentence.
No, I’m most expressly not. That very distinction is my point.
However, you are correct when you say:
But then you assume your conclusion:
I think later on in the thread you back away from this contention, and therefore we have no dispute.
I’m reminded of what I call, “The Walmart Fallacy.” This is the contention that all purchase decisions must be reduced exactly to price. I have been criticized for not shopping at Walmart when they have demonstrably lower prices. Somehow the fact that those places are ugly, dirty, poorly laid out, inconvenient for me to reach, and staffed by the surly isn’t allowed to influence my decision. (There’s also an Anti-Walmart Fallacy which I imagine is obvious in this venue.)
I may have misunderstood the conversation, but it seems to me there’s a bit of confusion going on. Stakeholding is not about some corporation spending money on good causes, it is about the requirement for the corporation to take into account other groups- the “stakeholders”- who purportedly represent interests affected by the corporation but not in the normal corporate chain.
So in practical terms it means an obligation to negotiate with NGOs, pressure groups, etc etc.
Agreed, Ian, I was lumping them into the same pot. But the ideas come from the same source, which is why I was using the term “stakeholder” broadly, to encompass both concepts. Perhaps that was too sloppy of me. Apologies.
John, I don’t criticize you for declining to shop at Walmart, or anywhere else. On the contrary; it’s entirely your decision where to spend your money, and if factors* other than the absolute lowest price are important to you I have absolutely no problem with that. My argument is merely that the directors and officers of a business enterprise are hired and paid to maximize the investors’ return, and that if they presume to spend the enterprise’s money in ways which are not directed toward that end (however “socially responsible” they or anyone else might consider them to be) without the express authorization or consent of the shareholders, that’s a breach of their fiduciary duty. They can spend their own money any way they like, just not other people’s.
* In your litany of Walmart criticisms you neglected to include the complaint that most of the patrons are extremely fat and/or otherwise unattractive. You might appreciate the photos on this website.
I actually rather resent that attribution, and furthermore, find it puzzling when followed by this:
…which was the point I was trying to make.
I suspect we are agreeing and failing to communicate.
I, perhaps erroneously, believed I saw in the initial comments a knee-jerk reaction to non-profit motives which I saw as perpetuation of the “greedy capitalist” stereotype. I hear a lot of this, and perhaps I saw it where it didn’t exist.
I thought you were saying that a corporate director must have greatest return on investment as his only goal, no matter what the wishes of the shareholders might be. That combined with Ian’s remark about Victorian gentlemen (whom, upon reflection, I assumed to be men of personal fortune, spending their own money) led me to conclude that perhaps people were getting a little over-excited and had allowed opposition to define their positions.
John, I think you are correct that we are talking at cross purposes. I’ve re-read your initial post and now think I misunderstood your point. My apologies. I think I was distracted by the “over the top” line and read the rest of it sloppily. Again, apologies.