Managing Leadership^®

Over the past few days we’ve seen how difficult it can be to identify who really owns today’s publicly-held and traded companies, what they truly want from that ownership, and how they actually communicate that intent and interest. It must be said that, for those of us who argue that the owner’s rights must be given active primacy in the scales of power for corporate governance to function properly, the results of our review do not bode well for that actually happening.

Rather, it is more likely that in such an environment, managers will take advantage of the vacuum created by this inchoate diversity of interest and attention to entrench their traditional hold on boards. They will play some public relations attention to a select few of the most vociferously pressed positions, and then will continue managing the company from a manager’s perspective and, inevitably, in line with a manager’s interests.

But in the end, proper corporate governance isn’t about ideologically-biased views of the roles in society of corporations, economic systems, or of who is best “fit” professionally or otherwise to run them. It is, simply, about maintaining the integrity of the chain of command and of authority - vital to the proper functioning of capitalism’s invisible hand of self-interest - all the way back to the owner.

Yes, it is undeniably difficult to identify the specific individual origins of those rights in the raging seas of anonymous shareholders, not to mention to determine their diverse interests and reduce them to actionable strategy and policy. Nevertheless, failure to make other than superficial attempts will merely lead to continuing contortion of the system and, inevitably, of more fiduciary failings.

For example, yesterday’s brief assessment, of the suggestion that owners communicate through price, points to a key distortion, here. When managers assume they are receiving all they need to know about owner intent and interests via share price fluctuations, they are really only hearing from a fringe - in a literal economic sense, a marginal - group whose interests may be strictly financial (as individuals seizing perceived arbitrage opportunities) or technical (as fund managers adjusting their portfolios), and not related at all to the specific traded company or its business model.

But if they nevertheless make that assumption, they may find themselves acting on it, as well. It is not difficult to imagine the results of this. On the one hand, otherwise well-intentioned managers can be misled into pursuing damaging policy while attempting to respond to presumptively signaled guidance originating in price movements that aren’t really signals at all, but (in this context) random fluctuations generated by the psychology of the traders or algorithms of fund managers. On the other hand, managers can represent these “signals” as justification for self-aggrandizing short-term policies, dynasty building, or even merger and acquisition deals.

This sort of thing can only be avoided if we restore (or establish) integrity in the corporate governance system. That, in turn, requires two things: 1) remove the governed (management) from the government (the board), and 2) find a way to establish government (again, boards) grounded in the only source entitled to it (owners).

Perhaps the best way to do that, as suggested earlier, is to establish a new vocation of professional directors - a career path separate from management, with its own professional education and training system. As a core part of their duties, such directors can find ways to screen out accidental owners (such as day-traders) and incidental owners (such as shareholders of exchange-traded funds) to discover those who truly have specific interest and intent in the owned company, and to find a way to discern what that is. They can then translate that into strategy and policy for execution by management.

Only then can managers find their true strategic role in the corporate system. We will turn to that subject (at last) next.

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This post is a part of a series. You can learn about and link to the other articles here: Anonymous owners

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Today’s tip: Steve Roesler, author of All Things Workplace, is presently continuing his important series on change at the vacationing Alexander Kjerulf’s site, The Chief Happiness Officer. Please stop over and catch all of Steve’s insightful essays on this vital topic.

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