As published in the Daily Mail, 14 August 2012

Britain’s car industry is booming. After decades of decline, the UK for the first time since the mid-1970s is making more cars for export than are being imported.

Investment is rolling in and production is up and rising substantially. Just this week Jaguar Land Rover announced its Halewood factory would move to 24-hour round-the-clock production for the first time with the introduction of an extra shift.

The car maker has created another 1,000 jobs at its Merseyside plant to meet demand for its ‘baby’ Range Rover Evoque – launched by Spice Girl Victoria Beckham who also created a special edition version and Land Rover Freelander offroader models.

Most of the UK car industry is now in foreign hands, and thriving. So how come, whilst it was in British ownership, the reverse was the case?

Some people blame the unions for their part in its downfall, but recently employees have shown themselves prepared to work hard and agree to flexible deals to preserve jobs, so it seems unlikely there is anything inherently wrong with the British workforce.

Others blame management for the failures. However, an analysis of the management structures of the German, Japanese and Indian car owners show that many of the managers in their UK operations are not only British but are doing a first class job.

So if Britain has top flight workers and managers, why did it all go so wrong in the past? The answer has to lie with the different corporate governance models that are used.

All the above mentioned car manufacturers are from countries where companies and their managements are not beholden to the Anglo-Saxon short term shareholder value model. This ethos inflicts a pressurecooker obsession with quarterly results on managers.

If boards are incentivised through share prices, they would rather pay higher dividends or try to please the markets with share buy-backs, takeovers or break-ups than invest in skills, modern equipment, new products, or research and development.

Professor John Kay alluded to the defects in the equity markets in his review for business secretary Vince Cable. He is clearly of the opinion that short-termism is not helpful to industry. However, his focus was just on the equity market and its players, not on the effects on manufacturing businesses.

The boards of BMW and Volkswagen can take a long view in spite of being stock market quoted companies, because they are not only responsible to shareholders but also to the other stakeholders, particularly the employees of the company. Their incentive systems are designed accordingly for the long term.

One does not need to look just at the car industry in isolation.

There are other examples of what corporate governance can deliver. Why, for instance, has JCB been so successful, weathered so many storms and seen its products have become world beaters? The reason is simply that JCB management can act like their opposite numbers in a German or Japanese company.

Another example is the Unipart Group, a buy-out from British Leyland that has blossomed under management and employee ownership and boasts now a turnover of around £1bn. Its strengths are its skilled and highly motivated labour force and management.

There are other examples – though unfortunately not enough of them. If Britain is serious about rebalancing the economy with a buoyant manufacturing sector, it needs to change the governance system.

The present one has been failing manufacturing in this country as long as I have been working in the UK – and that is for over 40 years.

It can be done, if a few people could jump over their beloved shadows.