Paul Sweeney: Listening to the anger, frustration and loss of the shareholders of AIB and Irish Nationwide, can anyone believe any more in the bull about the centrality of shareholders in modern capitalism?
The exposure of the failure of the governance system where shareholders “elect” directors to represent them on the boards of the companies they own must lead to a total reform of that system. Yet we are not even having a debate about it. I wrote a previous post on this, as well as a piece in the Irish Times last week.
For a long while now, I have held the view that the supremacy of “shareholder value model” of governance and of the shareholder’s role is a joke. It is welcome, if too late for so many, to see it so exposed here and internationally. But it has happened before. Remember Enron and the other big corporate scandals? It will happen again, but maybe we can try to change the rules to a stakeholder model of governance. In Ireland, a small economy which is so open, I believe that we have to lead and not lag on this reform. Our reputation is already in tatters, thanks to a few enterprise leaders and government inaction on regulation.
In Germany, the stakeholder or Co-Determination model allows workers to elect half of the supervisory board’s members, and the shareholder “elects” the other half. It is the strategic board, which sits above the management board.
Of course, it is not just PLCs which need deep reform. Michael Fingleton’s Irish Nationwide is supposed to be owned by its members, as a “mutual” building society. There is something rotten there with the massive losses due to so much lending to the politically-connected property elite and its staggering pension plan for Fingleton. It was governed by a self-appointed and compliant board of directors, overseen by former chairman, Michael Walsh.
Where are the leading academics on this issue? Has nearly every business and economics academic in Ireland been tipped out of the same mould?
Again, I fear that after this crisis is over, we will revert to business as usual, to our cost.