On the consistency of Willy Hutton
Of the varied commentators that parade and prance across the national life we have a certain weakness for Will Hutton. As a wonderful example of the, umm, consistency which is required to remain as an authoritative national voice over the decades. For example, it's a very good idea, in fact we should remake British business in this image, that companies are largely family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:
The proposed new Companies Act would set out a new legal framework that will privilege long-term, engaged investment. Mutuals should be created to aggregate proxy votes, and cast them on behalf of shareholders. The basic voting share will continue as now, but it will attract more votes the longer it is held; if shares are lent, voting rights will be forgone. This will strike many in London as going too far – a dagger at the heart of British capitalism. But when Google floated, its founders Sergey Brin and Larry Page issued two classes of shares, with class A shares having 10 times more votes than class B – so Brin and Page ended up with 37.6% of the votes for 3.7% of the shares. As they said in the letter accompanying the initial public offering, “we have set up a corporate structure that will make it much harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long-term, innovative approach.” Ten years on from the flotation, who can say they were wrong?
LinkedIn offered its original long-term shareholders 10 times the votes when it floated in 2011, and the Glazers floated Manchester United in New York rather than London because American rules allowed the family shares to have 10 times as many votes. Owners in mainland Europe – from the Wallenbergs in Sweden, who have holdings in most of Sweden’s top companies, to the Piëch family, part-owners of Porsche – use similar devices. Where there is business success and innovation, look for non-British corporate structures.
This trinity – business purpose, trusteeship and a range of committed shareholders – will be the foundation for the creation of purposeful companies, freed to behave like long‑term trusts rather than dance to the tune of peripatetic day traders. They will be value creators rather than rent extractors. It would be stakeholder capitalism in practice.
These proposals must be supported by a new takeover regime. The argument in hostile takeovers should not just be over price: it should be whether business purpose is being protected – with both sides being required to ask their shareholders’ view – and long-term shareholders’ votes privileged over those who have bought for a quick buck. The government should refer bids that create public-interest concerns and use the Competition and Markets Authority more aggressively. In short, takeovers, especially hostile takeovers, should be the exception rather than the rule of British business life.
We quote at length to show that this is not some throw away line, but central to Willy's vision of how business life should operate.
That was in February. This month we are told that it's a very good idea, in fact we should remake British business in this image, that companies are largely not family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:
Former CEO Martin Winterkorn, who resigned last week over the scandal, claims he knew nothing of what was going on, blaming a few unnamed executives for making a catastrophic error of judgment. Winterkorn was the consummate German engineer, knowing every dimension of engine performance; if he did not know how the dirty diesel engines of some popular VW brands were successfully passing US emission tests it was only because he chose not to ask. He did not need to. He had the backing of the Porsche family, who own just over 50% per cent of VW’s shares and who agree to vote as a block; the support too of the state of Saxony with a further 20% per cent –and of union members on the supervisory board. Winterkorn could run a company of 600,000, as Süddeutsche Zeitung remarked, as if it were North Korea.
VW is about production and jobs which trumps concerns about environmental sustainability – a culture than unites unions as much as the Porsche family.
And that's even in the same newspaper. So, umm, yes, the consistency of Willy Hutton. We wonder if he's heard of consistency?