The Business Book

125

German mittelstand companies—
such as Faber-Castell, a world-leading
producer of pencils—are usually family-
owned. Directors of such firms are more
likely to focus on long-term performance.

See also: Beware the yes-men 74–75 ■ Is money the motivator? 90–91 ■ Organizational culture 104–109 ■ Avoid
groupthink 114 ■ Play by the rules 120–23 ■ Accountability and governance 130–31

MAKING MONEY WORK

with the creation of large, public
limited companies (plcs) that
allowed senior management more
freedom to operate beyond effective
shareholder scrutiny. As long as the
company profits were satisfactory,
directors were free to conduct their
business functions as they saw fit.
However, if a business enterprise
comes to reflect the aims of its
managers, will the business be
focused on profit maximization
(for its owners, the shareholders) or
on increasing the status, financial
rewards, and power of its managers?

Personal interests
Some directors act opportunistically;
they seem to be more interested
in personal gain than in the
company’s financial well-being.
The banking crisis of 2008 led the
shareholders of many companies to

question corporate governance

mechanisms and executive pay. The

shareholders of Barclays Bank, for

example, were stirred into taking

action just before the bank’s 2012

AGM. They had discovered that in

the previous year, profits had fallen

by 3 percent, shares had dropped by

26 percent, but chief executive Bob

Diamond was due to receive a bonus

of $4.2 (£2.7) million and total pay in

excess of $10 (£6.3) million.

Restricted ownership

In private limited companies, the

situation is simpler. Since share

ownership is restricted (often within

a single family), the directors and

the shareholders are usually the

same people. In any case, it is

unusual for people to take advantage

financially of those within their

own circle of family and friends. For

example, the problem of perks before

profits is rarely an issue in Germany,

where the mittelstand (medium-

sized) companies—which are

mainly family companies—are the

dominant business model. A recent

study of the different performances

of family-owned and publicly owned

companies in Spain found that

family-owned companies performed

better, in terms of financial equity,

than nonfamily companies of the

same size in the same industry.

Countries such as the UK and US,

however, have a larger proportion

of plcs than many other countries.

After decades of noninterference,

shareholders are once again

becoming interested in corporate

governance and gain. ■

Leadership is a privilege

to better the lives of others.

It is not an opportunity to

satisfy personal greed.

Mwai Kibaki

Former President of Kenya (1931–)

Fewer perks, more profits

Several companies have taken

positive steps to eliminate perks

as part of a cost-cutting strategy.

At the German company

T-systems International, an ICT

subsidiary of Deutsche Telekom

AG, all workers must now fly in

coach class, regardless of the

traveler’s position within the

company, or the distance and

duration of their journey. The

change from business- to

economy-class travel is thought

to have saved T-systems $1.5

million annually. Executives

were told that the choice was

between a reduction in travel

expenses, or a cut in their

annual bonuses.

Since the 2008 financial

downturn, there has been an

increase in the trend of

organizations tightening their

purse strings. Even the mighty

entertainment company Walt

Disney is phasing out executive

car allowances. Cost cutting and

eliminating perks puts greater

pressure on managers to boost

their company’s profitability.