Global Policy Forum

By Alan Campbell

For many African countries, the question of ownership of the principal players in the economy has come one full circle - from foreign to national and back to foreign.

But the question of ownership and accountability has not settled and is reappearing in the heartland of the transnational corporation, the US. From there, it has moved to Europe and spread around the world.

Large corporations are a feature of all economies and the question of their accountability is now a subject of debate. And that debate has a title. Its called "Corporate Governance." What began as a topic among specialist corporate lawyers, academics and accountants is now beginning to find its way into the public arena.

So what is the debate about? The US line is the restoration of power to the owners of the company - the shareholders. Although in law, shareholders are the owners of the company and elect the board of the large transnationals, it was practice for the board to choose itself. This was because the membership was so spread out that no single individual could exercise any effect on the outcome of any vote. There were dissident shareholders who tried to speak at AGMs but they were regarded as a nuisance.

Then, the institutional investors started to get involved. Most people who can save, do put their money in investment trusts and other savings vehicles. It was the managers of these trusts who have started to change the rules.

Will Hutton, writing about Britain in The State We're In, said: "Extraordinarily, some 70% of company equity is owned by financial institutions like pension funds, insurance companies and unit trusts. Some management is delegated to investment management companies, but the larger pension funds and insurance companies perform their own management in-house. As a result, ownership responsibilities are discharged, for most companies, by no more than thirty or forty decision-makers."

At first, these quiet power brokers acted privately. If they wanted information on a company, they would call the board and act appropriately. They made decisions outside the general meetings. But power without accountability is dangerous and now English Company Law has a code requiring institutional investors to account for their behaviour.

The recently introduced Combined Code of the Committee on Corporate Governance requires that institutional shareholders have a "responsibility to make considered use of their votes." And that such institutional investors "eliminate unnecessary variation in the criteria which applies to the corporate governance arrangements and performance of the companies in which they invest".

They should provide information to their clients on the proportion of resolutions on which votes were cast and "non-discretionary proxies lodged." Then, they should take steps to implement their voting practices.

This raises interesting questions as to what these corporate governance principles should be. For some writers, the answer is easy "Maximise shareholder value." Arguments about short term profit and long term growth are dismissed as irrelevant.

At the opposite end of the spectrum to these, are those who could be loosely described as the stakeholder movement. For them, large companies are not simply wealth vehicles for the few shareholders but organisations with responsibilities to employees, retired employees, the local community, state, customers and the environment.

The list continues to grow but no matter who the actual members on the list are, the stakeholder movement insists that they be given a legal voice when taking important decisions. What we expect from transnationals and from the investors who control our savings invested in them are still being decided.

As individual states realise that the power of large transnational corporations may exceed the ability of the state to control them, the subject has become a matter for international relations and the United Nations is getting involved.

Alan Campbell was a senior lecturer in Africa.

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