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PUBLISHED : Tuesday, 19 November, 2013, 11:57am
UPDATED : Tuesday, 19 November, 2013, 1:45pm

Don't kick the bosses out because they're too old

Another day, another survey and another declaration of well-intentioned business advice from people who have never actually run a business.

This time, we have the worthy US-based Council of Institutional Investors telling us how appalled they are because the boards of listed companies are dominated by older people and are too “clubby” and insufficiently diverse.

These worthy edict-issuers are misguided enough to believe that just because companies are listed they are somehow democratic.

They really think that the old guys (yes, it is mainly men) who formed the companies are somehow going to let go and say: hey, we founded these corporations, built them up and have intimate knowledge of how they work, and we now think the best thing to do is to retire meekly into the background.

In Hong Kong this concept is even more absurd, because when the leaders of public companies talk about succession, the talent pool they draw on is largely confined to their sons. It is extremely hard to argue that these sons have even half the business nous of their fathers.

Moreover, what exactly would be the point of retiring, say Warren Buffett from the board of Berkshire Hathaway? Does anyone think that Li Ka-shing’s Cheung Kong empire would run better without the old man in charge?

Does anyone think that Li Ka-shing’s Cheung Kong empire would run better without the old man in charge?

Then there’s the question of clubby appointments to the boards of listed companies.

There is clearly a case to be made for not having boards of directors dominated by yes men, and a big dollop of diversity would certainly do no harm.

But let’s get real; listed companies are, to a very large extent, private companies with a great many shareholders.

These shareholders are not really brought in to help run the companies but to provide cash for expansion or, although it is rarely stated quite so bluntly, to give the company’s founders a way of cashing out of their investments.

The people who constitute this Council of Institutional Investors are fund managers. They may be good at running funds but that does not make them great businesspeople.

Indeed when big investors manage to join company boards, they very often focus on short-term gain rather than longer-term development. Their gods are the share price and, possibly, the dividends, neither of which are the keys to corporate growth.

Fund managers disguise their real desire, which is to make their portfolios look good, by raising the attractive banner of shareholder democracy. They are not advocating any kind of democracy for the working stiffs who are employed in these companies but for the people who have bought shares.

Besides anything else, this defies logic, because it is often the case that share buyers make their investments because of a belief in the people who run the companies.

I am not going to exploit, for political purposes, my opponent’s youth and inexperience
Ronald Reagan

You will find more investors putting money into Cheung Kong companies because they are followers of Li Ka-shing than those who want to see new blood come into the company. This is just one example; others are not hard to find.

There is, of course, a balance to be achieved between maintaining the services and wisdom of the old guys and finding new blood to help keep the companies going, but it will not be found by whining about the undemocratic nature of boards.

Indeed, there are instances when shareholder activism persuades company founders that they need to privatise their companies to put them back on course.

Michael Dell, the founder of Dell computers, is about to achieve this goal right now. The only real dispute was over how much he needed to pay the minority shareholders to secure his aim.

Lurking in the background of this discussion is a distinct whiff of ageism.

The fine people who have been complaining about a lack of “democracy” in public companies frequently draw attention to the age of the executives who run the corporations.

It should be noted that fund managers and the whole shebang of investment bankers and others who are involved in the equities business tend to be younger, very young in some cases.

As Ronald Reagan famously said when questioned about his age during the presidential race that he won: “I am not going to exploit, for political purposes, my opponent’s youth and inexperience.”

I should also add, in the interests of full disclosure, that I am ex-young myself, indeed arguably excessively ex-young, but like other people who found and run companies, I see no reason for this to hold me back.

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skywalker
Listed companies are not democratic, but as soon as they are listed publicly, they are obliged to exercise a certain transparency and they have to deal with the fact that there are public opinions. Kicking out the old bosses or telling the founders that they have no saying anymore is not the intention of this survey. But there are enough examples of companies - also public lists ones - where one can tell that everything merely depends on the old patriarch. These guys - including Mr. Li Ka-shing (the true Governor of Hong Kong) - will kick the bucket sooner or later. And what happens then? Is your investment safe? Is there a younger successor (who also might pretty old already) who can run the company successfully? The succession planing is very well a matter of public interest for such enterprises and worth being discussed.
daily
Still waiting for LKS to kick the bucket...............hopefully soon.
TDHK
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johnyuan
I don’t think age is an argument in the US for holding on a business; in fact it is none of anyone’s business. It only becomes an issue if an Einstein-like brain but in commerce who has both the business and political IQ relentlessly picking up wealth from a community suffocating any new comers – young or ex-young to have a chance. When such domination passes the mark in economy of scale, there is really zero chance for fair competition for anyone else.
.
It will be a great laugh for a family owned business that the founder would be stupid enough to be kicked out. I don't know what it is all about for SV to make such an association. Nevertheless, we all should give a good kick to those whose business handling aren't benefiting the society.
.
That is the issue. Age is not. Almost though. The Chinese saying, old ginger is more biting. So watch out.
singleline
Perhaps the only way to determine the winner of this argument is to wait and see how the share prices of Cheung Kong and Berkshire Hathaway fare when these old men are no longer there.
I'm also ex-young.
 
 
 
 
 

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