BUSINESS SPECIAL ............STEWARDSHIP Golden Thread

STEWARDSHIP Golden Thread  Stewardship is about taking care of the assets you are entrusted with, says Mark Goyder — and passing on something better      Mark Goyder can’t help but see the irony in some of the recent policy announcements that have been made in India, especially the one that requires promoters to significantly lower their holdings in listed companies. Goyder is the Founder Director of London based Tomorrow’s Company, a not-for-profit that works towards defining the role business needs to play in a changing world. “One of the biggest factors that contributed to the financial crisis of 2008 was that none of the banks had a key anchor shareholder or one owner with a large enough shareholding to say it was worth his while to get involved and exercise stewardship,” he says. While agreeing that the interests of minority shareholders have to be protected and there are benefits of having liquidity in the system, he urges the Indian regulators to learn from the mistakes of the West. “Having someone with a large enough stake in the business who wants to take responsibility gives it some sense of continuity which is extraordinarily important,” says Goyder, who was in the country for a workshop organised by the Indira Group of Institutes and to launch the Asian edition of his book, Living Tomorrow’s Company: Rediscovering the Human Purposes of Business. After spending 15 years in the manufacturing sector, Goyder set up this think-tank to influence public policy in the mid-90s. Over time, Tomorrow’s Company has played a role in defining the inclusive duties of directors for the UK’s Companies Act 2006, as well as the UK Stewardship Code among other things.     While the organisation works in the areas of sustainability and talent related issues as well, stewardship is the topic that Goyder is most passionate about. He defines it as: you are entrusted with resources, you take care of them and you pass them on in better shape than you were entrusted with them. At its core, it’s very close to the Gandhian philosophy of trusteeship that’s perhaps best embodied by the Tata Group in India. “To me, a lot of the inspiration about stewardship came from working with the well managed family businesses in UK,” he says. What stood out was the clear demarcation between the roles of the promoters and the professional management. He talks about British construction major Wates and says that the fourth generation was very clear about the terms on which they would enter the business and spent three years talking it through with their parents and uncles.     “When I first witnessed this clarity of stewardship in family and trust owned businesses, I described it as an anchor for the business, but that’s actually wrong. An anchor holds a ship still; this is a keel which enables it to get through changing conditions. This continuity can be brought in only by having someone who feels responsible for the business, and that’s typically an owner,” he says. Most people assume that once the business reaches a certain scale, they need to go through the motions and list the company. It’s one of the pressures that come with being successful. This is because people assume that there is only one way forward, but it isn’t so. He points out that family businesses don’t necessarily have to be passed on to the next generation, but there are several options they can explore, including setting up a trust managed by employees, or a hybrid structure where it is a listed company managed by a trust. There’s the example of Handlesbanken in Sweden, which is a listed entity, but with a bid to gain long term stability, it has started transferring profits above its stated target into a separate trust which now owns almost 10% in the bank.     A concept that is close to Goyder’s heart is the ‘golden thread of stewardship,’ which is about connecting the ordinary citizen through the investment of their savings with the health and well-being of the economy. “I mean having a simplified approach to investor stewardship whereby an ordinary saver can opt for the mutual funds they feel best speaks for them in the way it exercises its ownership responsibilities,” he explains. Just as someone buying coffee can go along the supermarket shelf, picking not only different flavours of coffee, but also prioritising the coffee brands that have “fair trade" labels, so also the financial services consumers that go along the financial services supermarket shelves and pick investment products from different funds but also prioritise those which have a clear label of stewardship on them.     One pet peeve though is how CEOs and directors often say their main responsibilities are to the shareholders. “Directors owe their duty to the company — it is a living being and is a bundle or relationships, not a bunch of financial transactions. Intellectually and spiritually, your first duty has to be to the company,” says Goyder. Similarly, he questions the premise when companies talk about a purpose beyond profits. “No business was set up with the hope of someday benefitting an institutional shareholder. It is motivation and the desire to prove or invent something that drives businesses. Financial success is an output, but can’t be the purpose. Entrepreneurship is at the heart of business,” he says. Till the 90s, British chemicals company ICI had a clear purpose beyond making money. After that, it changed its purpose and defined itself in terms of shareholder value and that was an absolute disaster, says Goyder. The company lost its keel and a sense of what defines it, and was eventually acquired by Akzo-Nobel in 2008.     Going ahead, Goyder expects sustainability to be at the forefront of how companies do business. Defining success solely in financial terms will simply not work. “Actual success depends on if it’s a business of well led relationships and a sustainable one. Sustainability will require you to redefine everything. In 15 years, measuring only financial success won’t work,” he cautions. There will be a sense of value in what companies measure and what investors look for as values will be important in the future. After all, what’s the point of living in a high-rise with a stunning view if you can’t see it through the smog?    4PRINCIPLES OF STEWARDSHIP: 1 Setting the course, clarity of purpose, roles and relationships: Shareholders and directors are all clear what is to be achieved and by whom 2 Driving performance: There is no point in winning good governance awards and then going out of business the next year. Continued improvement in performance concerns the discipline of everyday operations 3 Sensing and shaping the landscape: Companies that prosper over centuries are connected with the world outside 4 Planting for the Future: Don’t ignore the short term, for every business has to manage its cash flow and balance income and expenditure by the week. At the sae time, ensure the short term isn’t at the expense of the long term.  Priyanka Sangani CDET131129