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

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

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.