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Fixing capitalism means fixing the firm - Brendan Martin’s blog

Brendan Martin, 14 February 2013

How appropriate that Valentine's Day has brought publication of a new book called Firm Commitment -- even if it is all about the corporation rather than marriage.

That is not my silly joke but the author's, who delivered a brief and compelling talk about the argument in his book at the RSA today. Warming to the theme, he concluded with some appropriately cheesy verse: 'Roses are red, values are true, firm commitment will being happiness to you".

Luckily, Colin Mayer's argument is much better than his poetry, and at its heart there is, I think, a crucial point: that the policy debate about the future of capitalism seldom touches upon what is to be done about its core institution -- the corporation.

"The corporation has been hijacked by the interests of one group -- its shareholders, and mostly short-term shareholders," said the Oxford University management professor. The effect, he said, is "devastating", but little or nothing is being done to deal with "the most important policy issue of this decade".

Sadly, it is more obvious than original to note that the economy, society and the environment have been brought low by corporate behaviour, but Mayer's argument is as much a challenge to the left as to the right, if not more so.

Whereas the standard response when corporate behaviour diverges too far from the public interest is more state regulation or even nationalisation, he said, the issue is to fix the firm itself, rather than everything around it.

Yet, despite noting that the problem takes the form of shareholder interests diverging from those of employees, customers, communities and nations, Mayer's ten-point plan of action says nothing about enabling representation of those interests in corporate governance.

Rather, along with more diversity in corporate forms, he advocates more rights for long-term than for short-term shareholders on boards that would also have independent trustees to uphold explicitly stated values.

But what about representation for employees, I asked, and his answer was revealing: that while there is space in a diverse corporate landscape for firms with employee ownership, that could not be the whole answer.

True, but I had mentioned not employee ownership but employee representation, my point being that perhaps corporate governance privileges owners at the expense of stakeholders with other relationships to the corporation.

I am looking forward to reading Prof. Mayer's book, and I hope it does what he hopes for it, "to encourage debate about how to get business to work".

But I think that debate must address not only diverse ownership forms but also how to improve democracy in business, by enabling rights derived from employment, citizenship and future generational needs to be represented in corporate governance.



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