I read some, but neglected many of his books, to my chagrin.
Handy is still active, still thinking and writing, and this piece published on the Drucker Forum by EFMD is well worth a read.
It’s well worth a read. A few key stats pinched from it include the below:
- A recent Brookings Institute research report found that firms aged 16 or older now represented 34% of all economic activity in the US, up 50% in 20 years (this is not actually a good thing, according to Handy, as they seek to monopolise and rent seek rather than innovate)
- There are now 50% fewer publicly listed companies in America than there were 15 years ago; nor is it very diferent in the rest of the world
- The Harvard Business Review in 2014 noted that 449 companies in the S&P 500 index used 54% of their earnings, a total of a colossal $2.4 trillion, to buy back their own stock in the open market
- The median salary in both America and the UK has remained constant in real terms for the last 30 years; and, intriguingly, managements approach is not even working for the shareholders;
- The rate of return on US capital in 2011 was one-quarter of what it was in 1965 and Roger Martin, former Dean of the Rotman School of Management at the University of Toronto, has calculated that the overall returns to shareholders in the 40 years before 1970 was larger than in the 40 years after.
Handy concludes that:
- Directors are pocketing the seed corn of future generations and nobody is noticing or, if they are, nobody is caring.
- Until the late 1970s the prevailing orthodoxy in the boardrooms of the world was to retain and reinvest ones earnings. Now it is downsize and distribute, to ourselves and our supportive shareholders. We have moved from value creation to value extraction.
In conclusion he asks:
“…can we safely trust these huge, ageing, bloated and selfish organisations with our futures? Is it not time to return to the idea of a business as a responsible community that pays due heed to all its constituents, one whose core purpose must be to seek immortality through continuous self-improvement and investment?
Read the rest here. It’s not a long article.
I can see the points here. It’s not quite the full picture as far as I know. Yes many top execs are paid huge amounts. But they are popular with shareholders, and for a reason. Also, as this study shows, investors are as bad as companies in communicating with managers about what they want, vs. what they say they want.
I guess his overall point is hard to argue with though: Investors are not getting the returns they should because they are allowing managers to be too short term and thinking that the returns they get, and the strategies of the companies they invest in, are good enough, rather than as good as they could be.
I’m putting together a June event in London on how companies can better talk to investors about sustainability measurement and (e)valuations. Let me know if you’d like to be involved. Quite a few large companies have signed up to take part already. Tobias.Webb@innovation-forum.co.uk