It’s easy to sympathise with the non-English speaking peoples of this world when they charge Anglo-Saxons with attempting to hi-jack the global corporate governance agenda. The basic principles about the way companies should be run, and in whose interests, are very different in Germany, France and Japan, for example, from those broadly accepted in the US or the UK.
To the non-UK or US observer, these two English-speaking nations may appear to be as one, determined to stamp their systems on the rest of the financial and corporate world. In fact, even these two countries can find themselves out of step on issues like governance and executive compensation.
Take share options. The US had its wrangle about these a year or so back, when FASB proposals that companies should deduct the value of stock options from their earnings sparked a vehement debate. Companies – especially the high-tech concerns which make liberal use of options – lined up against the move, backed by some shareholder groups, and even the SEC.
Their arguments were numerous, including the fact that options are difficult to value and that, in any event, they should not be treated as just another form of compensation since this fails to acknowledge their wider benefits. Those were said to include their flexibility as a compensation tool and their role in aligning the interests of employees, managements and shareholders.
In the UK, the current debate on options has arisen out of the government’s knee-jerk response to the Greenbury proposal that options should be taxed as income rather than capital gains. As sledgehammers go, this is pretty heavy-duty. Its goal is to reduce the meritricious award of options to senior managers; in practice, it may serve to remove the whole point of options for lower ranks, who may now have to sell their shares to meet their tax liability.
This paradox may yet be resolved, but in the meantime it provides evidence of the paradox of trying to separate the shareholders’ interests from those of other stakeholders, especially employees. Perhaps the agenda-setting Anglo-Saxons should take a look at some of the alternative approaches already in existence elsewhere. It certainly wouldn’t produce easy answers to the dilemmas thrown up by the UK/US model; but it might lead to a more careful analysis of the problems – surely a prerequisite for solving them.
