Agent versus owner

In a context of job cuts and restructurings and downsizings, it’s appropriate to consider what the role of a manager of a business is. Current business thinking looks differently at those companies that are managed by their owners (privately held) and those listed on the stock market where there is an agent (the manager) who looks after the business for the owner. There are significant impacts in times like these as to how an agent will behave versus an owner.

The agent

The agent’s job is effectively to execute the interests of the owners. This obviously involves obeying the law, complying with regulation, and maximising the value of the company. Anything else (such as compassion, corporate and social responsibility, long-term thinking) may all be held personally by the agents or incorporated into the corporate culture. However, these all must come second to the interests of the owner - after all it is their company, their capital and their right to direct the operations of the manager.

The owner

The owner can usually take a longer term view. However, if the owner is an institutional investor, such as a pension fund, then they have to take into account their mandate to their investors or savers, which is to maximise the value of those investments or savings. So it all comes back to people who invest in ISA’s, or pension funds, or take out insurance. And do you (as those are you in general) actually demand an ethical policy, or non value maximising criteria written into your policies and savings documents? Don’t blame fat cat bosses, when the root of the problem is often at an earlier stage of the capital market process.

So to me, a lot of the problem stems from the agent/owner separation. This is always going to happen on public markets. It leaves the agent having to maximise profits and hence value, unless the investing institutions give a new mandate as to what their interests are.

• Is it fair to not blame the bosses?
• Have you ever invested in a socially responsible way? I expect few have.