Liam Fox, the British secretary of state for international trade appointed by Prime Minister Theresa May to lead post-Brexit trade negotiations along with Boris Johnson and David Davis, put his finger squarely – but not fairly – on the biggest headache Britain has had for years last week.
In comments to the right-wing Conservative Way Forward group, he referred to the anaemic export performance of Britain’s major companies, calling their bosses ‘fat’ and ‘lazy’, and claiming they would rather play golf than open up new markets with new products. The Times, which first published the comments, accompanied an opinion piece with the headline, ‘Don’t shoot the clumsy messenger‘.
The comments prompted an expected backlash from business leaders, but the facts themselves are evident. Former Chancellor of the Exchequer George Osborne’s ‘march of the manufacturers’ and the goal he set of doubling exports to £1tn by 2020 look further away than ever – exports of £510.3bn in 2015 were below 2014’s figure of £511.7bn.
Will Brexit make a difference? Sterling’s approximate 10% devaluation since 23 June has prompted hopes of a boost to UK exports. But while there may be anecdotal evidence to suggest this has already happened, the decline will have only a limited effect if sterling’s 25% fall in 2008-09 has any lessons for today.
British managers are not lazier than their German counterparts. But in many ways they have a much harder – if not impossible – job. They do not spend their time on golf courses these days, but rather use it to present quarterly return figures in such a way that they satisfy shareholders and/or optimise their profit- and often share price-related bonuses.
Many of the best British companies sit on large cash piles. They do not spend them on product development or opening up export markets in the Far East, for fear of an adverse reaction affecting their share price. They prefer to ‘return cash to shareholders’ through share buy-backs or look for mergers and acquisitions, rather than growing their companies organically. If all else fails, they can ‘bring the company into play’ and sell it at a premium.
The Anglo-Saxon corporate governance model puts British businesses at a disadvantage compared with their European and Asian competitors. More than 85% of German businesses – the famous Mittelstand – are not quoted on the stock market. Managers can afford to think and act long-term without fear of a takeover, being dismissed or losing out on remuneration.
Chief executives of listed companies are shielded by their supervisory boards, which include worker and frequently customer representation. This acts as a practical defence against takeovers and over-adventurous board directors, and is a useful tool for communicating with workers.
May – like Angela Merkel, the German chancellor, a scientist by training – appears to have a better handle on the root causes of the UK’s export malaise than Fox, a medical doctor with no business experience. She fired a first salvo in the right direction shortly before taking office by suggesting worker participation on company boards, as well as an overhaul of the UK company takeover code and remuneration practices in British boardrooms. It is ironic that, just as the UK turns its back on Europe, its prime minister wants it to adopt a more continental-looking business model.
Changing the UK’s shareholder value model will not be easy. Tony Blair talked in 1995 about the stakeholder economy model, similar to Germany’s social market economy or ‘Rhineland capitalism’, and was very quickly stopped in his tracks. Let’s hope May’s attempts to address the root causes of the problem, rather than its symptoms, are more successful.