Posted by: graemebird | June 18, 2008

How Legitimate Is The Typical Board Of Directors.

Every day we see a new put-upon where taxeaters are spending our money. Rudd blithely giving away millions to the life-long terrorists of the Palestinian authority. Just throwing out money from his overflowing pockets. A cool 50 million here, tens of millions there, and pledges for tens and hundreds of millions going out like its his money. No analysis need be undertaken. If Rudd gets off the plane and they suck up to him with dancing children he is likely to reward their attention to flattery and ceremony with millions of our dollars. So we are getting ripped off right there in astonishingly callous fashion. No wonder these Prime Ministers are given security staff even after they leave office.

Then there is the jobs for the boys sort of situation. Why did the Governor Generalship go to another taxeater? There she is and getting a pay rise to 374,000. They give her a payrise as the private economy crashes around our ears. Why choose a taxeater to do this job? Why shower her with money? If she wasn’t willing to do the job for $100 000 and free rent we could have found someone else. 

Things can only get worse now that the latte-drinking filth have taken over the labour party. But we must also consider the role of cronytown when it comes to the diminished opportunities of the rest of us. Because we are really talking about the taxeater-cronytown Nexus.  We are talking about the subtle ways that the system is rigged in favour of established big business. Not to banana Republic level but getting there.

I must emphasize that this is only a slant to the system we are talking about. And that surely we have productive businessmen and managers. But they can be doing a good job and STILL be overpaid. The system could have subtly stifled competition from below for decades giving them an easy ride. Let us turn to the case of Boards of Directors.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

LO’….. BE THEY SO PRODUCTIVE.

Once you concede that the company as separate legal entity is a necessary and valuable thing, this in no way implies that we ought side with the boards of directors in all things. We don’t declare them “Elvin” and the wage-worker “Orcish” and imagine that these Directors are just so very very brilliant and paid appropriately.

“Its a free market” you might protest. Yeah well we ought to be able to see through this by now. Because although small advantages to the big end of town can be subtle over time they can stack up so as to lead to an whole class of people who have an extraordinary ability to grab at the company largesse and look like responsible adults doing it.

 We can have directors sitting on perhaps 7 or 8 boards, pocketing maybe $70 000 a year on each of them for attending two-four meetings a year…..  OR DO I HAVE THAT WRONG? To tell you the truth I do not have any updated idea of just what these guys are getting away with at the moment. It could be a great deal worse than how I’m describing things.

We need not be lulled into thinking that this state of affairs is the result of the supply and demand of geniuses. Not enough experienced Captains Of Industry who are geniuses? Not enough of these geniuses to go to a couple of meetings every year? Well surely then the directors fees must go up. Simple supply and demand.

I……………….DON’T…………………….THINKSO!

It really comes down to entrepreneurs pretty much starting companies off-the-shelf. Starting the company and registering it. And going along with the rules laid down by government.  Not doing the hard yards that our new emphasis on the articles of association would mandate. Not doing the hard yards to resolve all internal conflicts of interest in advance. With less government involvement and regulation we would want these companies to be like little governments. We would want them to set their own internal rules with a great deal of care.

It is in the way of things that as society progresses all manner of subtle accomodations will be made to cronytown. And less subtle accomodations made to blood-sucker-central. So much do these guys work hand in glove that an ex-Prime Ministers wife can wind up on a boards of directors, and almost give away the game that its not any sort of free market going on here.

Cronytown likes lack of clarity. Cronytown always wins out if the rules aren’t clear. In practice they get to write their own rules, vote themselves huge stipends, and reflect on their superhuman business smarts after a long day involving a meeting and a game of golf broken in two by a nap.

You see there is just no way that its in the shareholders interests to be giving these directors all that cash. This is mandated into our companies as a result of the reality that they are creatures of government rather than more purely an expression of freedom of association.

We ought to get behind a different way of looking at the company. If their legitimacy, as separate legal entities, comes internally from the care in the drafting of their articles and the fidelity in their working from these articles, then it is up to the ARTICLES THEMSELVES,  to spell out how it is that some outsider can see to it, that the articles are being faithfully adhered to, by the people hired to make most of the decisions. It doesn’t have to come from some board of bigshots.

Its true that we need some sort of oversight to make sure management is doing a good job and not subtly raiding the till. But there is no reason why the articles of association could not spell out and alternate way that this might be achieved.

One time this consultant fellow showed up where I was then working to suss out how things were going. This particular company was going through many difficulties at the time.  I was astounded just how well the consultant had worked out everyone in the organization. It was like he’d been spying on us for years.  He knew what everybody was like. Their strengths and weaknesses. The whole deal. Seemed to have the exact same take as me as to what had been going wrong.

Now why couldn’t the non-management shareholders just get THAT fellow to ensure the uber-butlers were being faithful to the articles?

It doesn’t take a board of directors. Its just got to be planned for in the articles of association. Whatever mechanism it is the articles choose to keep the management in check. It ought not be mandated by government. Except to the extent of making sure that the articles themselves spell out how this sort of function ought to be realistically and cheaply undertaken.

 

More Later.

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Responses

  1. Graeme,

    People put their rich Aunt on a baord, and s588g comes up and then they get shown to be incompetent or negligent – they say “but I’m only a director!” but the law bites them very hard on the arse.

    It sure as hell isn’t perfect, but it has nasty repercussions.

    I think your idea is sound. It is more deregulation with a good basis.

  2. Right. So we have set it up poorly. We have set up a company system that is inherently a little bit bogus. Then after the fact we persecute people if anything goes wrong.

    Thats like buggering peoples ability to get along in this country, then having a negative income tax after the fact to make sure they don’t starve. Or like privatizing with scant regard to the competitiveness of the market post-privatization. And then regulating these guys after the fact in order to keep them in line.

    We want to do things right and get a fair system going where there isn’t plausible cause to be hauling people into court and keeping them in line through force and threats.

    It ought not be about taking sides. It ought to be about getting things right and fair.

    Tell me about s588g? Whats that all about. It seems like we criminalize the board after they go broke. Whereas companies going down the tubes is a sign of reasonable health. At least in an environment of high leverage.

  3. Oh right. Its to slam the directors if the management gets more debt going when they are already insolvent.

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