The first time I met Michael Sainsbury was on a plane from Canberra to Sydney, he'd been down covering a Senate committee I had appeared before. He had the advantage of me, he knew who I was but at the time I didn't know who he was. Thankfully that got worked out before I blabbed too much!
On that flight Michael put me onto an excellent book, Broadbandits by Om Malik. His liking of that book reflects a keen interest Michael has as a journalist in the human factor in business, how boards and management go about making their decisions. This is an interest he has applied with particular zeal to reporting on Telstra.
He has provided a very fascinating summary of the Trujillo experience, with not only an analysis of the CEO's modus operandi but also (with echoes of Mark Antony's "friends, Romans, countrymen" speech) some conclusions about the sets of decisions the Telstra Board has cumulatively made over the last 4 years.
His summary is a nice match to the Scales piece I have already written about. Both make interesting additions to the ongoing thesis about the conceit of management, and its counterpart, the inadequacy of the relationship between shareholders and companies (and the intermediation of various analysts).
I have a developing theory about the failures of "managerial capitalism", and they relate specifically to the supposed solutions to the supposed principal/agent problem. The problem is that identified by Berle and Means back in the 1920s that firm management pursue goals other than maximising shareholder value, and the presumed solution has been both the rhetoric that "the purpose of the firm is to maximise shareholder value" married with the creation of financial incentives for management in acieving that goal. There are a number of really poor consequences of that approach, including an excessive focus on the asset value of the shares rather than the income stream of dividends, and the sense that strategy is about "outperforming" the market rate of return.
The reality is, however, that in both the history of the development of the common stock firm, and the spcifics of the formation of almost all firms, the "purpose" of the company has been to meet some identified market need at a price that is sufficient to cover operating costs and provide a return to capital. Indeed, the idea that the objective is to "maximise shareholder value" can run counter to this actual purpose as it implies increasing the cost of capital rather than decreasing it (On a more specific point, the cost of capital will be technically lower if the income stream is stable. The objective of the firm to meet its purpose is actually better achieved by focussing on the stability of returns rather than the variability inherent in strategies to maximise value).
This suggests that in the wash up of the GFC we need to dramatically revisit the assumptions of corporate governance. We need to rewrite corporations law to re-elevate the concept of the "purpose" of the company, and to require these to be closely and narrowly written. We need to redefine the fiduciary duty as being the performance against the purpose. There will be much objection from corporations, especially based on the supposed problem of seeking shareholder approval for changes in purpose or on the whole basis of the strategy conversation (are railways in the railways business or the transport business). My responses to these (I have them) need to wait for a longer discursion.
In the meantime, let's hope that Michael Sainsbury continues his forensic examination of the decision making of corporations. I've previously described Michael as the "Shane Warne of journalism" because he successfully builds a false sense of confidence in his subjects, the equivalent of bowling up a stream of innocent leggies. He had Telstra and Sol in this mode, to the point where they invited him to an exclusive interview with Sol. I guess the timing to line up with one of Sol's visits to Australia was tight - because Michael actually abandoned an interview with another industry CEO to immediately respond to the call.
But the story that followed was Sainsbury's wrong'un - completely taing Sol and the Telstra flacks by surprise. This has earned him a place amongst those the "Telstra luvvies" revile over at nowwearetalking. I call it good journalism, and hope that he might find time from China to put more of his investigative skill together to write a small monograph called either "The Sol Experience" or "Telco Icarus; getting too close to Sol".