No 1, your time is up
Do Britain's top bosses hang on too long? Paul Rodgers weighs the argument for reining in the power brokers No 1, your time is up
Sunday 27 August 1995
For seven months a year she travels, visiting every shop and supplier. Her aphorisms litter the corporate literature. Although her management style has all the trappings of a personality cult - and her autobiography, Body and Soul, has been dismissed by some critics as a manifesto for a mini-tyrant - Anita Roddick is unapologetic. "How can you be wrong when you borrow ideas from Mahatma Gandhi, from Martin Luther King?"
An interesting question, but not one that prevents two academics at the London Business School believing Roddick should have been turfed out of her job years ago. John Kay and Aubrey Silberston have joined Sir Adrian Cadbury and Sir Rick Greenbury in the debate on corporate governance with a suggestion that chief executives and executive chairmen face term limits like those that restrict US presidents - a four-year contract renewable once only.
"For all but the most remarkable of men and women, authoritarian structures are insidiously corrupting," argued the duo in a paper published in the National Institute Economic Review.
"Leaders hang on to power too long, and many prefer to undermine those who might seek to replace them than to develop potential successors. Cults of personality develop, and are supported by sycophantic lieutenants. These are often associated with inappropriate accretion of privileges and excessive fascination with the trappings of office. Slogans replace analysis, rallies replace debate. There is an alternation between periods of too little change and phases of instability in which there is too much."
Their unusual opinions are not without precedent. Like many companies, ICI, Britain's chemical giant, has a mandatory retirement age - in its case 62. As most new chairmen are over 54 when appointed, it effectively works as a term limit. Interestingly, the system was set up in 1968 after ICI endured two overwhelmingly powerful chairmen, founder Lord McGowan, who lasted 24 years, and Sir Paul Chambers, who stayed for 9.
Most observers admit that boardroom power can distort a director's perspective. "We all run the risk of becoming petty Napoleons," noted Sir Alistair Grant in an article he wrote in 1993 after taking over as chairman of Argyll Group after a 15-year stint as chief executive. "And none of us has Napoleon's compensating genius."
Tim Melville-Ross, director-general of the Institute of Directors, agrees. "One has to ask serious questions about anyone who has been in a post 10 years or more," he said. "In principle there does need to be some kind of term in the minds of the non-executive directors." But that is a far cry from a legal cut-off, he insists. "At the end of the day these people are leading the wealth- creation process, and you have to give them their head. The suggestion [of statutory term limits] seems a wholly inappropriate way of dealing with chief executives' appointments." A spokesman at Tomkins, where Greg Hutchings has held sway for 13 years, said: "It would be like Bjorn Borg retiring after winning Wimbledon three times because his time was up."
That view would be widely shared in Germany, which has no shortage of long-term chief executives. The country's economic backbone, the Mittelstand of medium-sized companies, was built up almost entirely by managers who started up after the war, and stayed in charge for 30 years or so. Helped by supportive banks, industrial relations peace and the lack of a stock market of any size, they were able to build their companies smoothly and steadily. Almost to a man they were autocratic and hard - the German expression for them is "Manchester capitalist".
The academics admit their proposals are not foolproof, but argue: "The number of [executives] for whom more than eight years is too long outnumbers considerably the number for whom it is too short." One of their key examples is Lord Weinstock, managing director of GEC, Britain's leading electronics and defence contractor. Like Baroness Thatcher's, they say, his reputation would have been "immeasurably higher" had he left office after eight years.
This seems perverse. It would have pushed Arnold Weinstock on to the streets in his prime - just after he had bought AEI and English Electric, assembling the modern GEC. But there is a widespread feeling that he has stayed on too long. At 71, he still has another year to go, and envisages taking on a "consultative role" after that.
His delayed departure has served mainly to give him one more chance to spend GEC's cash - on an pounds 835m bid for VSEL, the submarine maker. His decision last year to seek a change in the company's articles to allow him an extension was not welcomed in the City. Nor is his desire to see one of his sons take over from him. His management style has changed little in more than 30 years. He still goes over the
monthly reports of each of his subsidiaries - about 150 now - making brutally direct comments in the margins.
On occasion, long-serving executives have ended up losing control to their rivals. Sir Neville Bowman-Shaw started the fork lift truck company Lancer Boss in 1957, built its sales to pounds 200m, then last year was bought out in a hostile takeover by Jungheinrich, one of Germany's real Mittelstand companies. Sir Neville was a brilliant strategist and a natural engineer, but with his aquiline looks, military manner, and fierce temper, he became known as one of the most domineering managers in British industry. A high management turnover resulted - and when Jungheinrich took charge, it was difficult to find workers or managers who regretted Sir Neville's departure.
Sir Geoff Mulcahy, the boss of Kingfisher for 13 years, was recently demoted from chairman to chief executive after a year in which the company was the worst-performing FT-SE stock. Sir Geoff blames its troubles on a confused management structure which he is sorting out, but critics, including ex-Kingfisher directors, say the confusion stems from the boss's management style.
Sir Geoff has concentrated power in his own hands so that his managers often know less about their areas of responsibility than he does. "He's not a great respecter of reporting lines," noted one.
Even more successful companies can show a tendency to drift towards the problems the professors complain about. John Ritblat, who has headed British Land for over a quarter of a century, is said to have a coterie of supportive, long-term lieutenants at his elbow, and is thought to be grooming his sons to replace him. Stanley Kalms, the man behind Dixons for 28 years, has the opposite problem. The most common criticism is that he is too hard on his colleagues, and even he admits that he gets through a lot of them. Some rivals have, with grudging respect, called him autocratic.
Given the wide range of personalities and circumstances that prevail in British corporate headquarters, it is hard to imagine institutional fund managers, let alone the executives themselves, voting for the professors' proposals. That may be no bad thing. Fixed terms in US presidential politics often result in a leader losing control - and the last thing Britain needs is a nest of "lame-duck" chief executives.
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