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Welcome to the LSE Events Podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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All right, well, let's go ahead and get started. Good evening, everyone. And also good evening to the people joining us online. And welcome to lse. My name is Eric Schneider and I'm a professor in the Economic History department. Before I introduce our speakers, I just want to go over a few rules of the game for how this lecture is going to go. So the first thing to point out, as I just said, this is a hybrid event, so we have people online as well, so keep that in mind when you're asking questions. The lecture will also be recorded and made available online so people will know what you've asked in 200 years. So just keep that in mind. If you want to post about this event on Twitter, or X or whatever it's called, you can use the hashtag lsevents. And can I please ask everyone to silence your phones so that we're not interrupted? So the way this is going to work is that I'll introduce our speakers and then Michael and John are going to introduce the book. We have Judy Stevenson who will give a kind of rebuttal, and then we're going to have a lot of time for questions, so make sure you're keeping notes and thinking of questions you might want to ask. You will have seen as you've come in that there are books available to purchase outside as well. So please do stop and get a book on your way out. And Michael and John will be very happy to sign those for you as well afterwards. So, great. When you do ask a question, please wait for the microphone to get to you. I know, like, we probably can all hear each other, but if we want the people online to be able to participate, then we need to have a microphone in front of you when you're asking your question. So please wait for that. And for those of you online, please type your question in the Q and A function and those online questions will be passed to me, and then I'll read them and voice them for you to our speakers. Okay, hopefully that's all very clear. Let's get on to the main event. It's our pleasure to welcome Dr. Michael Aldis and Professor John Turner here to LSE. Michael is Senior Lecturer at Queen's Business School and Queen's University Belfast, and it's really a pleasure to have him back here because he did his master's and PhD here, so it's a Homecoming. So yeah, welcome back. Right. Michael's work focuses on a really wide range of topics in business history, from corporate governance in the 18th century London Assurances Company. This is a really large kind of marine insurance Firm to the 19th century Textile trade between Britain and India. So yeah. Welcome to Michael John is professor at Queen's Business School at Queen's University Belfast. And he's published a really large number of articles and books on financial and business history. And it's really kind of difficult to summarize these, but he has a recent book that's got a lot of coverage in the press and is really intriguing and interesting called Boom and Bust, a Global history of Financial Bubbles. And it really presents a really lively discussion of the history of financial crises around the world for the past 300 years. So highly recommended reading after you buy the CEO. And then finally we have Professor Judy Stevenson, professor of Economic History of the built environment at the Bartlett School of Sustainable Construction at ucl, who will be our discussant. Judy's work focuses on historical labor markets, including some really fascinating studies on the laborers who built St. Paul's Cathedral and how the labor market worked for them. But she also has a lot of business experience as well. She worked as an account director at several advertising agencies before moving into academia. So she can give a really interesting perspective on tonight's topic. So what we're here to do then is to launch a book which is fantastic. Always fun to be able to do that. Right. So the book is the CEO the Rise and Fall of Britain's Captains of Industry. The book analyzes how British CEOs have affected the performance of their companies, how, how they've influenced the British economy and polity and how they've shaped inequality and social mobility over time. And what's really fascinating about the book is a lot of like really interesting characters and anecdotes that come out from that. And you see that it's very engaging. And so I think we're in for a real treat tonight. So I'll pass over to Michael to get us started.
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Wonderful. Thank you for the kind words, Eric. It's real honor and a pleasure to be back here at my alma mater. I spent four of the happiest years of my life in the excellent department for economic history thinking and intellectually engaging with historical methods, long run thinking introduced to the likes of Joel Mokir, Darren Acemoglu, Claudia Golden. Interestingly, the Nobel Prize committee seems to have caught up with the department in recognising just how important economic history and a long Run perspective is vital to understanding the pressing challenges we face today. So whilst in no way expecting Nobel recognition for our work, we do think a historical perspective allows us to rethink some of the important debates around the role of chief executive officers. And we hope that what we're going to do today is convince you why we should care about this role and why we should care about the people in it. And there's no better setting, I think, in which we can try and make these arguments. So, whilst we don't want to bore you with the academic minutiae of the book, and there may be some of you who regret that there won't be any regression tables in the next 30 minutes, there'll be quite a lot of you who absolutely won't. We do want you to know that the book is the outcome of a sort of a very rigorous academic study. It seems like a very long time ago now that myself and John received a grant from the Leverhulme Trust. And we used that then to construct a database of CEOs from Britain's top 100 corporations by market capitalization between 1900 and 2009. And by doing this, we identified over 400 companies and around 1400 CEOs. And then for every CEO, we built a biography where we looked at things like their education, their career experiences, their family backgrounds. And so what we're doing with this book, then, is summarizing what we found by looking at the data. And we asked four main questions that drive the book. Who gets to the top of the corporate ladder? How do they get there? What do they do as a CEO? And what impact then do they actually have on the companies that they lead? And by answering these questions, we think that we're able to tell a story about how the British economy, society and politics have changed over the 20th century. So what we're going to do now is to talk you through seven of the key lessons that we've learned and that we think are important issues for. For academics, for policymakers, for corporate decision makers, and for an informed general public to think about when we consider the role and importance of corporate leaders. So, first, and perhaps most critically, we want to convince you that CEO's matter. And we start the book with the story of Saman Sorel, longtime CEO of the advertising giant WPP. He's now chairman of S4 Capital. After a highly successful career with Saatchi and Saatchi, in 1985, Sorel bought a controlling share in wire and plastic products. This was a small listed company which manufactured supermarket baskets so that's the origin story of one of the biggest advertising agencies in the world. Over 30 years, Sorrel transformed WPP so that when he left in 2018, he'd integrated over 400 advertising agencies and related companies around the world. It employed over 130,000 people in 112 countries, with revenues of around £15 billion a year. This is one of the most extraordinary sort of corporate British corporate success stories of the late 20th century. This was an enormous achievement. However, along the way, he was famously described as an odious little shit. One executive of a company taken over by WPP said he would rather lick an abattoir floor than work for Sorel. His exit. And for the legalistically minded of us in the audience, note the word allegedly was shrouded in acrimony, claims of bullying, misuse of company funds. This all paved the way for his departure. And this for us is really the critical conundrum at the heart of the book. CEOs matter, because when they get it right, they can do extraordinarily important things in the economy. They drive and harness innovation, they improve productivity and they create jobs. But when they get it wrong, they destroy value, they destroy companies and they destroy people. These stats should give some useful context. These are some very recent statistics from the British economy. The top 100 public companies in the UK employ about 6% of the workforce. They contribute nearly 14% of tax revenues. This is inclusive of PAYE, and each of them supports around 6,000 small businesses in their supply chain. The person running these companies therefore wields significant economic power. We've calculated that across the century, on average, these individual CEOs account for around 10% of company performance, both good and bad. They are highly consequential in the decisions that they make. One of the things we show in the book is that over time, CEOs have become more powerful. We look at how the role has changed across the century and one way we do this is by actually looking at the titles that have been used to describe the most senior executives within the company. And we think about what this represents in terms of the scope of the role. And for the first half of the century, what we see is that two terms were fairly dominant. The first was chairman and the second was managing Director. And that what this actually represented was a role, sort of the most senior form of authority being shared within companies. The chairman was often the one who made the major sort of strategic decisions. Managing directors were the ones who ran the company on a day to day basis. But authority was often Shared. The first time we actually see the term CEO appear in the UK is around the 1930s and it would slowly rise to become the dominant term used for the Senior Chief Executive officer in the 1970s and 80s. And what we think is happening here is that this represents the shift towards an all powerful single executive running companies, so that by the 1990s and 2000s, power and authority within companies have been amalgamated into this single individual. So CEOs have become more powerful, they matter more today. This will be a theme we come back to when we think about the challenges this then poses for the governance and controls on these individuals. So as they're incredibly economically consequential, we need to think then about who can actually rise to the top and become a CEO. So our second lesson really focuses then on the social mobility around this role. Who gets to the top tells us a lot about the opportunities for social mobility in our society. We can think about whether this is a closed cadre, dominated by Etonians and the Oxbridge elites, or do the barrow boys, the post room clerks, can they make it to the top? These are both sort of very common tropes that we can think about when we think about these sort of social mobility in these corporate elites. And anecdotally, there is a tendency to see the British economically as synonymous with the social elite. So the chap on the right here, this is Viscount Churchill, Victor Spencer. The clue to his social origins are in the name Spencer. So Diana Spencer, late Princess of Wales, he comes from the same family. He was the page of honour to Queen Victoria. He studied at Eton, Sandhurst, he was the Lord chamberlain at Edward VII's coronation. His social sort of denominations go on and on. And with seemingly no business experience at all, he became the chairman of the Great Western Railway, one of the country's largest and most consequential economic units at the beginning of the 20th century. He's fairly emblematic of the widespread view that British business has been dominated by aristocratic amateurs. Whilst there's certainly some truth to this, at the end of the 19th century, even by the beginning of the 20th century we begin to see things change. And what we actually see is that those drawn from the social elite, rising to the top of the economic or corporate elite, here we think about peers of the realm, members of the aristocracy was steadily in decline. What we actually see is that business was a social elevator. There was a large number of businessmen, many from very humble backgrounds, like Thomas Lipton, who we returned to, and William Lever, staunchly middle class, northern background, who were raised to the social elite because of their business success. What we also find is that there was a steady move in which promotion to these roles came through meritocracy. And certainly we see this from the 1930s onwards that the majority of people who were reaching these roles at the top were, were actually being promoted there, not because of family connections or because of their socially elite status, but because of their business experiences and success. Individuals without social elite status were perfectly able to make it to the top. And we do find that in the years after World War II, this became quite a significant trend. This gentleman here, this is Leonard Lord, he was the CEO of Austin Motors and the British Motor corporation in the 1950s into the 1960s. Now his father was an attendant at the local public school, sorry, public baths. He went to his local school, Bab Lake, which had a very strong technical curriculum due to his academic ability. He actually stayed there until he was 16, which in the 1920s was very unusual. Most boys had left school by the ages of 12 or 13. But from the age of 16 he developed extensive practical engineering experience. Drawing on his school's technical expertise, he worked his way up through several automotive companies until reaching the top of Austin Motors. And in the 1950s he was far from unique. What we actually see is that those who Left school before 15 with virtually no academic qualifications started either in the mail room. And we can think of these as particularly sort of white collar clerk type positions or, or as industrial apprentices like Lord, they actually formed a fairly significant minority of those who were able to rise to the top of the corporate world. So we think that actually when you compare this with similar US data, the indicators are that the British corporate elite was far more socially mobile. In the post war decade, social advancement through business was actually a British reality, but rather than an American dream. Our concern however, is that this mobility is now being reversed. In recent decades, these types of careers in which people could start in the post room or start on the production floor or the retail floor, has slowly been eroded. And that actually this idea that now everybody has to go to university to enter into these types of career pathways has been a significant curtail, has had significant curtailment of social mobility. However, for 50% of Britain's population for most of the century, of course, corporate careers have offered little in the way of mobility. Of our 1400 CEOs between 1900 and 2009, how many women do you think we encounter? And that's an open question. Shout out some numbers to me. How many women do you think were there? 15 high very, very high. Much closer. Very close. The answer. I like it. Three.
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Three.
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Okay. So when we submitted our first draft to our editor, he suggested that we had a diversity problem. Now, we wanted to think then about why this happened. Why did it take so long for women to play a significant role in the corporate economy? So the first female who would actually held the title of CEO, we see here on the left with Theresa May. This is Marjorie Scardino. She became CEO of Pearson in 1997. In the bottom right we have Cynthia Carroll. She was the CEO of the giant mining company Anglo American in 2007. And what's interesting about both of these people were that they were American. And we think that that probably has something to do with this story. In America, there was gender discrimination legislation passed much earlier, a decade earlier, over a decade earlier than it was in Britain. So in the 1960s, they'd already started to pass legislation that would encourage women to sort of enter the workforce and remain in it. This took longer in the UK. Interestingly, these are the first two mothers in the FTSE 100. And we also think that tells a story. Their husbands actually stayed at home and raised the family. So they inverted the normal gender norms and. And it was their husbands who would raise their children. So as Americans with these particular family arrangements, they were amongst the first to rise to the very top. And this is interesting because this didn't have to be this way. This is quite a frustrating case of sort of retarded development because in the top right we have the formidable Margaret Hay Thomas, the Viscountess of ronda. In the 1920s, she was the chairman of the of seven companies. She was on the board of 33 companies. She was the first female director of the Institute of. First female president of the Institute of directors. In 1926, she was the founder of the Efficiency Club, a network that sought to promote women's role in business. She was a company founder. Why did it take so long when we had pathways being broken at this much earlier point in the century? So there's always been extraordinary women who have been able to play major roles in the corporate economy. Why were they not able to make it to the top? And we think that there is a lot here about the lack of legislation and also social and cultural norms that have prevented women from taking on these roles. Despite this inordinately slow Progress in the 20th century, we do actually have sea change. In the last two decades, purposeful efforts to improve female representation in the C Suite and on boards show that there has been some improvement in Mobility. Now we think that these numbers will continue to rise. Whether they increase quickly enough, I think is another story. But what we're thinking about here is the importance of creating pipelines that actually enable and improve diversity. Business and corporate careers can be drivers of social mobility. Where we see this through our evidence, we see that there are social elevators created through these roles. But pipelines need to be very carefully managed in terms of access, timing and mentoring to enable that diverse people can enter into these careers and progress through what have become increasingly narrow pipelines and pathways to the top. The third lesson then concerns families. And we think that family values and families really matter. Across our study we see the profound role played by the family environment in shaping and enabling individuals. Most obviously we see this in CEOs of family owned firms. So we have on the left there. Oh, sorry, to your right we have Alfred Mond. He was the son of Ludwig Mond and he was steeped and grew up in his father's firm, Brunnermond, which would become one of the largest British chemical companies in the 1910s and 20s. So he learned in his family firm's environment and would rise on to take the firm and turn it into ICI in the 1920s. William Lever, on the left, he grew up in his father's grocery business, learning the trade on a day to day basis. When he came to found Lever Brothers, which will go on to become Unilever, the capital used to do this came from within the family. Education, training capital, particularly in the early parts of the century, came from within families and their networks. But more than that, and more importantly for us, we think the values steeped within these family environments were vitally important. Lever and Mond were both Liberal MPs whilst running their companies. They were deeply committed to the socially progressive values of the Liberal Party at the time in the early 20th century. And we see them taking these values and using them in their firms to determine how they sort of operated, how they treated their workers. We also think that stewardship due to family ownership were critical, giving people a long term view focus on taking the company forward, not just for profitability, but for the delivery of sort of the values that were embedded in the family. So why then do we see a decline then in these family firms and in family values within sort of the corporate world. And what we see here is this example and this is one of my favourite characters in the book. In the middle. This is John Ellerman. He was perhaps the most successful British founder ever in the 20th century, probably into the 21st century. His business success was extraordinary. You can think of him as a proto private equity operator. He built an empire in shipping, brewing, newspapers, property. When he died in 1933, he left a fortune of £33 million. That puts him on a par with some of the largest business created fortunes in the US at the time. It was three times bigger than the Guinness fortune which had been left several years before. Yet what happened to the company after his death is fairly indicative of the problems with family ownership he's shown here with his son John Jr. And the plan was to pass the business on to him. Unfortunately, John Jr. Had absolutely no interest in business whatsoever. He went on to become a world renowned academic, expert on rodents. He also had a deep interest and spent a lot of money on musical theatre. And the business really stagnated. The most he would do was turn up as chairman to the annual general meeting. And that was as far as he took his business interests. He actually tried to get the British state to nationalize the business and take it off his hands. So this kind of represents what we think of as the succession trap. The fact that family ownership is often reliant on a genealogical lottery, which often doesn't come to pass. We also have this issue around the founders shadow. The Lever brothers that went on to become Unilever is in many ways an outcome of enormous luck. William Lever was highly controlling, quite a megalomaniac. He kept an undated but signed letter of resignation of all of the directors of the company in a desk in his office drawer so that he could make sure that anybody who disagreed with him, he could just boot them out of the company. And so the business actually survives almost by accident, when it's about to collapse, they bring in an accountant to take it and run it for him. Okay. And this in part explains then the decline in family businesses across the century. We can think of other issues, particularly around the rationalisation of industries in the post World War II period. A lot of mergers, a lot of takeovers, increasing capital requirements, making it very difficult for families and founders to run capitally intensive, technologically advanced industries. But we believe fundamentally something has been lost in this process. The sense of stewardship and values derived often from families and their networks, is sorely missing in the modern corporate landscape.
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So good evening everyone. I'm just going to continue on thinking about these seven lessons that we learn from our CEOs from this study we have done over 109, 110 years. Lesson four. The UK has been very poor at creating CEOs and apologies if you are in the audience and you are one of these individuals I'm going to mention. But since the 1940s when we looked at our data set, we see an increasing number of CEOs who are coming from two professional routes. One is engineering and the other is accounting. Now, there's nothing wrong with engineers or accountants, but the way that they are professionalized or were professionalized in the UK created problems in terms of they didn't make for very good CEOs. So two of the archetypes here we've got here John Davis on your right. He was the chief executive of rank from 1952 to 1977 and he typifies the problems with accountants in the top job. First of all, he was very risk averse. So when he took over rank in 1952, it was one of the biggest film companies in the movie companies in the UK and in Europe. But he didn't like the risk attached with making movies, so he decided to make low budget movies that would actually pack cinemas. And so this other gentleman up here, Norman Wisdom, famous comic actor, made 16 films with John Davis because of Davis's intolerance for Risk and the carry on films. All 27, 28 of them were made thanks to Davis's intolerance of risk. He also hated R and D and innovation because he was an accountant and his trailing taught him a short payback period. And so with a short payback period, his firm didn't engage in research and development or innovation. He also didn't believe in marketing. He wasn't really interested in the consumer and wasn't really interested in selling. But worst of all, his training meant that he had exceptionally poor people skills. In fact, he modeled his managerial style on Mussolini, even had his office designed to be like that of Mussolini's, this big long office with a high desk at the end of it. And he would summarily call in his executives and fire them on Friday afternoons or call them home from their summer holidays and fire them, or as he called it, executing managers. So that training that he had as accountant didn't prepare him to be a good CEO. We also see this with engineers. We've already seen a picture of Leonard Lord who was the CEO of the British Motor Motor corporation in the 1950s. And the British Motor Corporation, by the way, was the largest by some distance, the largest exporter in the UK in the 1950s, played a very important role in the post war recovery in the uk. And Leonard Lord was an exceptional production engineer. He was possibly one of the top two or Three production engineers in the world. He had an exceptional mind for producing things and producing things efficiently. But his training as a production engineer meant that he didn't believe in market research or marketing. Okay, we're going to make it, they're going to buy it. It was time to hit his mentality. He wasn't a fan of product, proper costing or accounting controls in businesses. He believed in his intuition when it came to these matters. And interestingly, given that he was a production engineer, he actually didn't care about the quality of the cars that the British Motor Corporation manufactured. And there was very poor build quality within these cars. And all these bad traits that Leonard Lord had, we can see in the Mini. So the mini was created 1957. Leonard Lord asked one of the top car designers in the uk, can you design me a Mini car that's going to drive all these awful German bubble cars off the road? And Lord very quickly got the prototype. He took the prototype around the factory at Coventry, gave it a quick spin around the factory and basically came out and said, bloody build it to his team. So the Mini was produced super, super quickly, but it was produced very poorly. It was poorly built and there were lots of defects with the early Minis and lots of product recalls on the early Minis. But thanks to Princess Margaret and Twiggy and Dean, Margot Fontaine and all four Beatles, the Mini became the it car of the early 1960s and everyone had to have a Mini. And by 1962 it had sold half a million. Now, British Motor Corporation's big rivals in the UK at the time was Ford uk. So the UK subsidiary of the Ford Motor Company, it was really puzzled by how popular the Mini was and how the British Motor Corporation were able to sell the Mini at £496, which is about two thirds of an annual salary in the 1930s, 60s. So Ford UK bought a Mini, they had its engineers strip the car down to figure out how much it cost to build. And what they find is that The Mini cost 20 pounds more to build than it was being sold for. The Mini was a commercial disaster and we can lay that at the feet of Leonard Lord. We see this also, and thanks to Professor Cassis for some of his work. Looking at CEOs and executives in other countries, we're able to compare what the UK was like to Germany, France, United States at this time. How many CEOs, what percentage of CEOs of top businesses had a university education? Well, in these other three leading industrial economies, quite a few speaks to the breadth of their preparation and their education in the UK. The UK is a laggard, okay? The CEOs hadn't got the breadth of education. And it's also true with business education. These other major industrial countries have been very quick to develop business education and train their managers and prepare their executives for top roles. So starting at the bottom with France, Japan, and then we've got the United States, Germany, and look at when the UK first produces its first business schools. UK universities were very snobbish about business. LSE wasn't one of those universities. Commerce was a major discipline here, but it wasn't pursued at a graduate level or MBA level. And it's with Manchester Business School, London Business School, being created with pressure from the government in the 1960s that we get the first business schools emerging in the uk. Okay, Possibly. When I speak to most of my friends, I'm telling them I've been writing a book about CEOs. The question they ask me is, why are there so many fat cats? Why are they paid so much? And why have we got this world of fat cats? Well, thanks to work by Alexander Pepper and other data that we've been able to collect, here's the ratio of CEO pay to annual average earnings. So take 2023 as an example here. What this is telling us is that the annual average income in the UK, which is 37,000 in 2023, the average CEO of a top 100 company was earning 155 times that annual income. And you can see here that, you know, before the 1980s, this sort of figures hovering around, you know, 2030 mark, we've got some data that stretches way back and that's kind of the level at which CEO Pay is hovering 20 times annual income. But this huge rise in CEO pay in the 1990s, why do we see this really kicking off from this period? So what we do in the book is tell the story of Margaret Thatcher's. And by the way, I didn't realize this until yesterday. It was 100 years ago, since Margaret Thatcher was born yesterday. And I grew up as a Thatcher child and experienced privatization and witnessed all of this. So here was British Gas, okay? Privatized in 1987. Its pay, the pay of its CEO was set by civil servants, by the top civil servants, and it was agreed at cabinet level, okay? Notice what happens by 1994 after privatization. Look at the pay of the CEO. It's over half a million. And of course, workers are not faring so well. There's lots of layoffs at British Gas. Same true for British Telecom, 1984, it was privatized. CEO pay before privatization was at £85,000. And by the time we get to 1994, it's 1.2 million and 100,000 redundancies. And if you look at the CEO pay of all those formerly nationalized companies, gas, water, utilities, whatever it might be, between 1983 and 2002, their pay increases by 1500%. In real time. I'm sorry, in real terms, that's a huge, huge number. And the interesting thing about many of these companies, with probably British Telecom being the one exception, they were all pretty much doing the exact same thing that they had been doing prior to privatization. And of course there was pushback again. 1994, British Gas, the pay of Cedric Brown, their CEO, had gone up multiple times at the AGM. In 1994, there was to be another resolution to push his pay up even further. Here we've got the GMB union outside the AGM with Cedric the Pig, which was a saddleback, 20 stone saddleback pig. You can't see it on the two buckets, but one bucket has stock options, the other has bonuses. And these are the swill buckets that the pig is eating out of. And at this AGM, there were 7,000 people at the AGM. AGMs typically at this time attract four or five hundred. Alex Salmond had bussed down five busloads of Glaswegians to the meeting. They turned the air blue when they stood up to speak and after five hours of debate on the floor went to a vote. Are we going to put up Cedric Brown's pay? And it was voted through by 90%. How come? Well, the board held all the proxy votes from the large institutions and there has been continual pushback in the press against CEO. High CEO pay. We see it here in this sort of tongue in cheek headline from the Guardian. But at 1pm on the 4th of January, that's when the pay of the average FTSE 100 CEO exceeded the average pay of the typical person in the uk. So why does CEO pay, why has it increased so much? We look at five reasons. Is there something about CEOs today that there wasn't in the past? The job requires unique skill sets that you have to pay. We don't think so. Is it Americanization? So similar trends are happening in the United States for sure in terms of high CEO pay. And it maybe starts a decade or a decade and a half earlier in the uk. We don't think it's Americanization. What we think it is is changing social norms around superstar salaries. So we come out of World War II, we're all in this together, and CEOs just wouldn't have been paid these high salaries in the decades after World War II. But social norms change in the 1980s, and we see the emergence of superstar salaries end with CEOs. But we see it, of course, what we do in the book is line this up against the pay of Premiership footballers. Again, similar trends in terms of how they're being paid. But the main driving force, we think, of this increase in CEO pay is de unionization of the private sector. And this is a trend both in the United States and in the uk. So in the past, you know, CEO Pay goes up 10%. The trade union comes to the firm and says, okay, well, CEOs pay is going up to 10%. We want this for all the workers. Okay? But when you've got de unionization of the private sector, then that wage bargaining has collapsed. And I suppose the other reason that we do touch on in the book is we look at tenure of CEOs. So 10 CEO tenure has fallen over time. And so there is this idea that possibly CEOs are taking more out of the business in the short window that they have. Okay, the sixth lesson is really to do with corporate governance. Now, CEOs have always behaved badly, but behavior seems to have deteriorated over recent years. And it sort of culminates with, with this gentleman, Fred Goodwin, who not only destroyed his bank, the Royal bank of Scotland, that had been around since 1727, he also, he tanked the British economy or contributed to the tanking of the British economy. And I believe we're still living with the legacy of what Fred Goodman and his ilk did all those years ago. So why is this egregious behavior of CEOs got worse? Well, what we do in the book is trace this back to the beginnings of the modern corporation here in the UK. And that's the 1862 Companies Act. Michael mentioned musical theatre earlier. Well, at the time, Gilbert and Sullivan, several decades after this act came out, they created a comic opera, Utopia Limited, which was first shown actually, or first staged on the Strand in one of the theaters in the Strand in, I think it was early 1890s. And their comic opera was lampooning the 1862 Companies act, saying, the people who run these companies can, in effect, do anything. There are no checks and balances on them. And they were right. There were no checks and balances, but we had family ownership, we had the aristocracy. Those things were checks and balances. We had the post war sort of, and the role of trade unions. Those things all kept CEOs we think, from becoming extremely egregious. But we've had this deterioration. So what do we need to do about it? How do we stop CEOs behaving badly? Now, our book's not a book about corporate governance, but we think that looking at the, the history of the CEO, we learn the following. We need to anchor their pay, tie it to the pay of those in their company. We need to think of CEOs as stewards, stewards of people, stewards of the planet, stewards of the resources that they have, that they actually leave that firm that was founded in 1727 in a better shape than they found it. We also think that there should be a corporate purpose. Every company in the UK that sets up has a memorandum association. In that memorandum association, it says we exist to do x. But the CEOs never held account to that. The CEOs held account for profits for the share price. But really it should be held to account for this corporate purpose that it states in its memorandum of association. This is the idea of Colin Maher. The other lesson that we learn from CEOs is competition's good. Competition keeps CEOs honest. Competition helps CEOs. And so if we're going to fix corporate governance, these are some of the things we need to think about. Finally, what makes for a great CEO? Maybe some of you here aspire to be CEOs someday. What makes for a great CEO? Here's what we've learned across these 1400 CEOs. Here are the four traits of successful CEOs. First of all, they're smart. That's cognitive ability. Doesn't mean that they've been to university, doesn't mean that they've been to a good school. It just means they're smart. And you need to be smart because when you're leading a company, you're trying to take a company from where it is here today, somewhere in the future. You need a strategy to get there. That's an intellectually complex puzzle to solve. Martin Sorrell described being a CEO as solving intellectual problems. So you need to be smart. You need to be organized, diligent, and have attention to detail. If you want to implement a strategy, get your firm from here to here. You have to be organized. You have to be diligent. You have to make sure that your strategy is being implemented. You also need people to implement that strategy. All the great CEOs are great people, persons they have brilliant interpersonal skills. And what we see observe about Most of our CEOs is that they have a personal purpose. They're not driven by power necessarily. They're not driven by money or profits. They've got a purpose. So William Lever has already been mentioned. What drove William leverage was bringing hygiene and cleanliness to poor people. That's what he cared about and that's what drove him in the creation of his business. And so there's calls to actions to businesses here. You know, most of the best CEOs on our book were insiders. So that means you got to improve your talent pipeline. That means you've got to broaden your talent pipeline to get the best people. Finally, the only one of our 1400 CEOs to make it on the front page of Time magazine is Sir Thomas Lipton of T fame. If you ever had Lipton Tea, this is who Lipton Tea is named after. And he was a very keen yachtsman and he sailed in the America's cup five times and he lost every single time. And the Americans loved him. They called him a plucky loser. And when he died, President Hoover sent a telegram to Lipton's secretary to express the sympathy of the American people. You know, when it comes to developing CEOs and developing great corporations, America has shown the way. And we think that unless British businesses change the way they create CEOs, unless they get to grips with the corporate governance problem, we think British companies are going to be the plucky losers that they have been for many decades. So thank you very much for listening. You can purchase the copy online, there's copies outside. And I think I'm going to hand over to Judy now who's going to say a few words.
- [46:07]
D
I'm trying the new varifocals. So thank you very much for inviting me onto the panel. So we've had a bit of an allusion to insiders and outsiders. And one thing you should know is this is an insiders gig because Michael and I shared an office for those four happy years while we were doing our PhD so together. So, you know, I may be positioned as the critical discussant, but we are also co directors with John, of an institute called the Long Run Institute, which was drew out of many conversations we and others had at the time about putting history, and particularly economic history in the boardroom. And Michael's particular interest in understanding the boardroom and the effect that it has on the wider world has been a driver for this book, but also hopefully this conversation. So I come to this as an economic and social historian. But I, as Eric mentioned, also spent 15 years in the communications industry in large advertising agencies up to board level. And it was the point where the guy who you showed the picture of earlier, one of somebody who worked directly for him, offered me a job running a large piece of global business out of New York, I think late 2008, that I saw the abattoir floor, and I had presented myself as a student here for a master's in economic and Social history or economic history in October 2010. So here is my abattoir floor and it's been very good to me. Thank you very much. So with that in mind, because lots of the people I worked with in that decade or two have gone into the FTSE, the C suite of, you know, the FTSE 100, and indeed some of them in the S and P. So I bring a bit of that perspective about, you know, what it takes or the kind of motivations of people who want to be there. And ultimately that's not what you're going to find so much in this book. What you are going to find is a rollicking good read. So before we go any further with this sort of analysis or consideration of the issues, I want to commend John and Michael for it's meticulously well researched, it's highly entertaining, it's accessible, it's witty, very witty, and it's also a very important cultural and social history of the business elite of Britain in the 20th century, something that's sort of, at the moment, understudied. And I think they're making a really important contribution to that. So thank you. And lots of the monikers and themes that you use will go on to be cited endlessly, you know what I mean, like, you know, the buccaneers, fat cats, etc. So I'm looking forward to seeing that develop. So, to the key question of are chief executives worth it? I will return, But I want to engage with the book's themes a little more from an academic perspective. And the first theme, or the undercurrent throughout the narrative is to the problem of the nature of the firm, which economic and social historians love as a kind of juicy topic or the rationale of the enterprise itself. And much of the time that Michael and I spent being PhD students together focused on the 19th century as the point where the nature of the enterprise, the nature of joint stock, limited corporations, operations, brought that into a particular kind of form where it could be run as an enterprise by actors, life, chief executive. So I would Encourage you and those who are going to cite and use Michael and John's work to think about how that risk moved into a place where it opened up the opportunity for the individual. And what John and Michael highlight is that the corporate governance problem that this threw up, you know, they've used the Gilbert and Sullivan example to highlight this is systemic, there isn't a solution that society has to the lack of high standards that accompany responsibility in corporate life. And as the first chapter basically highlights, the whole role of the chief executive then becomes an anomaly, an anomaly for lots of things. Theories that as economic and social historians we want to engage with, theories of meritocracies, efficient markets, principal agent theories and theories of the firm more generally. So we have contradictions and an anomaly. And as you point out in the last chapter, and I would say famously highlighted by Mario's of two other great issues, economic and social historians Mary O' Sullivan and Bill Zonick in 2000, you know, shareholder value, you know, the start of a new form of capitalism, the nature of the firm or the production productive enterprise is one that is constantly changing. And the current evolution has incentivized the creation of financialized return on investment and as a result brought about the dissolution or the destruction of corporate wealth. So return on investment versus wealth and it is the return on investment in a financialised sense that you have put your chief executives up as a benchmark for. And that leads us to really, you're examining the legitimacy of the leaders or chiefs of this shareholder enterprise and calling into question the legibility of the corporation as a whole. So it looks like fun. You know, it reads like rollicking good stuff, but there's some very serious stuff behind here. And in highlighting the trend from Nobleche oblige or, you know, response, a broader sense of social responsibility towards, you know, the pursuit of financialized goals solely, you are highlighting that there are many institutions that supported those non financial goals which are not there to give us checks and balances anymore. And what you're basically saying is we need some of these. So there are some very, you know, serious questions. The question naturally arises if, if we were not asking chief executives to manage financial performance or return of investment, but productivity against another metric, would we view them as succeeding or failing? Would you your analysis still be the same. And I think it's interesting you've highlighted the work of Colin Myers who has written about the corporation and who has suggested that corporate purpose be enshrined in the foundational legal documents of the firm or legal foundation of the firm. This, when compared to combined with the sort of upper echelons approach that you take, would suggest that perhaps chief executives might become the chieftains or high priests of the values that we're asking, the purposes that we're asking the chief executive to embody within the firm. So I think a lot of the issues that are highlighted here, where you're looking to regulate or legislate, possibly the law of unintended consequences might be an outcome. But given it is the financialized model of shareholder capitalism that you are evaluating, I think it's important to note that we are very much looking at the North Atlantic model of this, the American versus US comparison. And you're very upfront about that. Again, I think it would be interesting to consider were we to look at this from a European perspective or a global perspective, considering particularly the form of corporate governance one tends to find emerging in the Middle east and south and East Asia at the moment. Would the questions and the outcomes be the same? You know, the famous sort of two tier model in Germany has given us some quite different outcomes. Has it given us the same problems of chief executives? So for me, this highlights that there are. You've used sort of upper echelons theory, and I think that's a very accessible way for the wider audience that you are targeting with this great book to engage with the concept of chief executives. But as economic and social historians, there are some other theories that I think we could have brought in here. And it's a week for human capital theory, isn't it, given the Nobel Prize of Monday. But I think that human capital theory here could have explained a very many of the observations that you make, particularly around social mobility and particularly around why women are pretty much absent from your data set. And you know, Claudia Golden's work in explaining, you know, how human capital is a human accrued through interaction with the market and through interaction with organizations is one explanatory factor of that. So the implication from a lot of what you say in relation to your passages on women is that women would have done something differently, even though, as you note, the three that you found didn't. So the statistics are too small to call that. But I think there's some other theoretical ways that we could have come at this. So in terms of your four principles, what does as an economic and social historian, you know, what might history suggest? The first thing I would say is that anchoring chief executive pay to the pay of the average worker is a really attractive idea. We all feel there's a form of social justice in this. But there's a trick here. As somebody who's spent the last seven or eight years tearing my hair out with like theories of wage determination and labor markets, essentially what economists are understanding increasingly is that pay is set by employers. Markets do not create pay. Employers create pay scales. And the average wage is driven by the largest employers. They, FTSE 100 companies are not the largest employers. There are other companies that are. And so that would naturally create incentives possibly to raise the pay of the average worker in the FTSE 100 company, which could be a very good thing. But if it's not tied to an overall productivity, then you're probably advancing the process of creative destruction or simply business failure if the pay does not do the basics. So although we know that fair pay would be a very good thing and would probably help the legitimacy of the chief executive role as a whole, ultimately nobody really knows what fair pay is beyond a standard of living. I think one of the other notables as a historian is that the role of the number of firms in the FTSE 100 today which are engaged in production as opposed to services is really very small indeed. Mostly FTSE 100 companies are engaged in services which create value added through some sort of speculative or technical process being added to ideas if they're intangible capital rather than hard capital. And therefore there are multifarious business models, far more multifarious than there were in 1950 or 1920. And I think that needs consideration with what actually we're asking the task of chief executives to do. And as you say, the diversity that you argue is needed can only come from within. This raises a problem for us all in that we understand if insiders are doing a good job, then we need the people who are coming into these firms to be more diverse. And it's well documented. In fact, we've all spent at least seven or eight years worrying about the fact that the diversity of those who emerge from education system like and great schools like this are becoming less and less diverse over time, even though the, the educational system is working very hard to try and change that. So that's a problem that probably beyond questioning just how graduate recruitment works or how people are brought into the workplace for the first time, actually society needs to solve on a bigger level. I think one of the most pertinent points you make is that some of the greatest changes in the role of the chief executive and in the corporations that hire them has been brought about by major historical events which you can argue whether they're, you know, how divorced, they are, but are part of much larger social processes, namely the First World War. And so my firm prediction as a historian is that these very great anomalies with the role of chief executive become interesting from a historical perspective because something large, war or otherwise, is going to make the whole system obsolete or different. I commend you for a really enjoyable read and for writing the history of, you know, this very important question of how the individual can lead in a. Yeah. Witty and historically accurate way. Thank you.
- [60:35]
B
Hi, would you guys like to respond to Judy's comments first and then we'll.
- [60:39]
C
Open up to the floor, I think. Open up to the floor.
- [60:43]
B
Okay. Do we have any questions? Yes, we can start down here at the front row.
- [60:48]
D
Hi, I'm interrupting this event to tell.
- [60:50]
C
You about another awesome LSE podcast that we think you'd enjoy.
- [60:54]
D
Lseiq asks social scientists and other experts.
- [60:58]
A
To answer one intelligent question like why.
- [61:01]
C
Do people believe in conspiracy theories? Or can we afford the super rich?
- [61:07]
A
Come check us out. Just search for lseiq wherever you get your podcasts.
- [61:13]
D
Now back to the event.
- [61:15]
C
Earlier you talked about anchoring pay for CEOs to keep them in check. But wouldn't that incentivise businesses to leave the UK and harm the UK economy overall? So would it be better to let them self regulate? Yeah, so we are having this problem at the minute particularly around tax of high paid individuals and high net worth individuals leaving the country. And so this is a fear that and of course the UK corporate economy hasn't been doing well. You look at the new issue market, London on stock exchange has been moribund for two decades. So there is a problem in the uk. I don't know if we were to anchor their pay, would that cause would we have less talented individuals leading these companies? I'm not so sure. It might shake things up a bit because for sure we need to shake things up would be I think what I would say say to that.
- [62:08]
B
Yes. Here Eden, just raise your hands, he's right behind you.
- [62:17]
C
Thank you for a really fascinating talk.
- [62:21]
B
I took a mental note of the picture of Theresa May and the early woman CEO and also of Spencer who attended one of the coronations, I can't remember of which monarch. So I wanted to ask if in the great data set of the biographies of the 1400 CEOs do you see trends of relations between those CEOs and the political elite and whether these trends.
- [62:56]
A
Are changing throughout the time and do they correlate with the changes in the.
- [63:02]
B
Salaries that we see from the 80s onwards? The unionization rates, maybe. I don't know. What are the trends of the political.
- [63:11]
A
State relations in the data set that you've created? Yeah, so we see some really interesting changes from the beginning of the 20th century. We find that somewhere almost around, is it 30% of the corporate leaders were also MPs. They were either MPs before or during their tenure as CEO as well. So there was this direct relationship between sort of corporate and political elites. They were able to leverage these positions for different reasons, often around regulation. So perhaps the role of Spencer, as we show, was actually his ability to manage the company through a major regulatory change in the years after the First World War. And that was important because he was member of the House of Lords and could sort of exert this power in this way. This changes quite rapidly over time. What we see is the number falls to. I think the last standing MP who was also a FTSE 100 was in the 1990s. But that's a real anomaly. Basically by the Second World War, this becomes very uncommon because you have this professionalization of both roles. But one thing we think about, though, about the curve on pay, if you want to relate this to pay, is actually that there was this sense of noblesse oblige that is created by this, that we are both a corporate and a political elite and we therefore manage on behalf of the country. And we're therefore not going to aggrandize ourselves through these roles. That could be debatable, but we think that that is a check what happens over time. We think that in the Post World War II, there's actually a divorce between business and politics. There's actually quite a significant separation in interests. You can again maybe think about the sort of rise of the role of the Labour governments around this, this. And then by the late 1970s, 80s and 90s, what we see is the emergence of sort of corporate interests in political lobbying. So here you can think about, you know, sponsoring of think tanks, the proximity, particularly of certain CEOs. We talk about James Hanson in the book. He was one of Margaret Thatcher's favorite CEOs, who's very much on the inside. And the way they begin to exert influence on politics is indirectly. Okay, so they're there, they are sponsoring, you know, root ways to change policy to their benefit, but they're not doing it directly. And you can think about which is better or worse. In this case, it's like when they were MPs, at least you could vote them out. Now that they can exert this enormous, enormous power through their economic power, through their sort of monetary sponsorship of these activities, it's potentially quite hard to unpick their ability to lobby and create political outcomes that favour them.
- [66:11]
C
The really interesting thing that we document in the book is around Fred Goodwin, his relationship with the Labour government. At the time he had a Hotline to number 11. He was invited to all the major big wig parties that were being thrown where all the politics was happening. President Bush had him to the White House to a dinner to celebrate the marriage, as it was then, of Prince Charles to Camilla. You know, he was in touch with all of these political elites.
- [66:44]
D
I think we should note, I think we should Note that in 1900 or 1920, if you were any MP and you were chief executive of British company then, you were a major player in basically the third largest economy in the world. Yeah. Today you're not in that position. And yet the, you know, 1906 is a kind of a turning point in financial and business history because J.P. morgan saves, you know, the American finance financial system after San Francisco, you know, it becomes recognized that the Americans have all the money and all the gold and all the capital. We already know that that moment, well, that moment passed in 1906, but now it's all concentrated. Something like, you know, 10 times the power of that is concentrated in just one place, Palo Alto. So we're in a very different relationship between capital and power as a country and as a set of business leaders than we were 100 years ago. I think, I think that sort of context is useful.
- [67:51]
B
Yeah, we've got tons of questions here. The next I had actually was Tataka Roy, gentleman, blue jacket.
- [67:58]
C
Hi, thanks. So I'm curious to what extent these very high salaries in the recent times.
- [68:05]
D
You have probably tracked that for, for.
- [68:08]
C
Several years, reflects the global circulation of.
- [68:11]
A
This type of service in the last 20, 25 years. You know, the more that increases and there is less of tie to family or network, you would expect that these.
- [68:25]
C
Salaries will have a retention allowance.
- [68:27]
A
Everybody, a kind of global benchmark will.
- [68:29]
C
Will decide salaries in uk, UK rather than UK is productive. Do you see that effect? So just to clarify, to tanker. So this is around globalization and movement. Yeah. So we do look at the sort of ethnic origins of our CEOs and what we're finding is that in the period that we look at, very few actually are traveling from elsewhere to become a CEO in the UK. And you also find very few UK CEOs going across the pond to where the salaries are even higher. So you, you know, so Americanization is Playing a role. Globalization is playing a role, but we don't think it's the major driver of high pay in the sector.
- [69:12]
A
Yeah. So remuneration committees used this idea of competition. Right. We have to compete for the best candidate because this is now a globalized economic environment. And so this was used a lot in RA rhetoric to justify increasing pay. As John said, what we actually find is because the vast majority of CEOs are insiders, they're hired from inside the firm. Still Today, about nearly 40% of them are lifers. They've spent their whole careers in this firm. This idea of competition needs to be understood in a more nuanced way. The chance of you actually, as a British corporate leader going to manage in The S&P 500 is pretty small now. Probably in the last 10 years, we have actually seen an increase in the number of US and international CEOs coming into the British market, into the Footsie 100. There has been an increase. But still, this idea of competition as the driver of pay, I think needs to be treated quite carefully. I think it's used as a justification in rhetoric. I am not, not as convinced the reality, certainly in the 90s and 2000s, was as clear a driver of these outcomes as it's been made out.
- [70:25]
B
Okay, other questions. Let's come up here to the front.
- [70:30]
D
Yes, I mean, thank you very much.
- [70:32]
B
For a very good book and very.
- [70:35]
D
Large argument, big argument. I just want to ask two questions. One, I mean, how much has, you.
- [70:45]
C
Know, I mean, neoliberal, you know, the.
- [70:47]
B
Politics from 80 onwards, as, you know.
- [70:50]
C
Contributed to the, I mean, fat cats.
- [70:54]
B
You know, I mean, productivity debates and others.
- [70:57]
C
And I mean, you also mentioned, you.
- [70:59]
D
Know, in British, like, I mean, telecom.
- [71:02]
C
Has worked differently from the British gas.
- [71:07]
B
And in what ways has it worked, you know, differently after privatization?
- [71:14]
A
So the story of, for want of a better term, neoliberalism is what we would describe as financialisation and financialization of the economy and financialization of business. So this is whereby decision making and outcomes are judged purely on their financial merits. And we start to see this begin to come in really in the 1970s, the late 1970s. And this is where we see these characters, I think is the term I will use the corporate raiders, the buccaneers who start to come into the economy. And the message that they're using is that the British economy has been moribund because there has been no competition. Because. Because the management, the incumbent management, they just aren't interested in generating returns for shareholders. And they come in and they start saying, actually this needs to change. We're going to take over your firms and we're going to run this in a different way and we're going to do this to generate returns for shareholders. And we can be very proud as Brits that we were absolutely at the forefront of this one. We were not laggards to the Americans on this. This issue. We were absolutely there, right at the forefront of this trend. So James Hansen, Jimmy Goldsmith, Jim Slater, these were very innovative entrepreneurs in many ways who were driving these changes. And this plays a huge role. This is probably the single biggest break or change we see in the book, that by the 1980s they have changed the fundamental rhetorics, the ways of management. This is where ROA becomes this dominant form of measurement of corporate outcome. The accountants become even more important. That's a triumph for us as well. So that's really, really this huge break around financialization. And actually the argument we're quite keen to make is that this was not people relying on external changes in academia, changes in ideology. These were business people doing this from the ground up. And they were really important in changing this rationality. So they play an enormous role, I think, in driving financialization and driving these new ways of doing business and these new ways of measuring success.
- [73:40]
C
So let me very quickly pick up the. The British Telecoms. You know, you're getting old when you actually live through the history that you've. But what happened with British Telecom is super interesting because it actually has a lot of backing from. From the government. In fact, the Labour Party, when it came into power, really helped open doors for British Telecom. But British Telecom essentially changed from a telephone company to a mobile telecoms company. Think Internet, think 2G, think 3G, think global. They were a major player in the United States, they were a major player in Argentina, Spain, Germany. They became a major player. And that's what changed about bt. Whereas the other utilities kept doing what they were doing and some may say, in some cases, not doing it as well.
- [74:34]
B
All right, I'm going to take a question online. Sorry, we'll come back in just a second. But it's kind of actually related to the point that Michael was just. Was making. It's from Trim Hussain from University of Oxford.
- [74:46]
C
What?
- [74:46]
B
Would you comment on the effect of C Suite so coo CFO on CEO success and firm performance? Are there any complementarities between these roles? Like, did you. I'm just riffing on it. You know, do you think, like, really good CEOs build a good C suite team that helps them implement their policies?
- [75:05]
A
Yeah, absolutely. So There's a really interesting dichotomy you can think about here, which is the role itself has gained more power and more authority. And over time we see this, that this sort of the power and authority is vested now in these single individuals so they become more powerful. But we do know, and you know, because it's a book, we can't answer every question, but we were asked, why don't you write more about top management teams? It's just like, well, if you give me another million pounds, I can collect a lot more data to do this. But there are limits to what we can actually do. But we would certainly say that the role has become more powerful, but success is now being increasingly dictated by the quality of the teams that are put together. And that actually the capacity of the CEO to bring in high quality players and performers and to build that team and manage that team, enabling them to be successful, is probably, as John says, one of the critical roles now it's not, you know, you know, they've got to be good people, persons throughout the organization, but I think putting together these top teams is now really critical. So they are more powerful. But I think the teams matter more than ever now. Great, thank you. Yeah.
- [76:24]
B
Why don't we come here? Woman in the red shirt.
- [76:29]
D
Thanks, Judy. I think you mentioned that there were institutions in the UK that played a role in checks and balances, that would regulate CEOs beyond the non in their non financial performance. I just wondered what examples there are here. I assume maybe unions, but also there are other examples. Okay, yeah, I was thinking big institutions.
- [76:49]
B
Yeah, let's go here in the back. Navy's Best.
- [76:54]
A
Thank you for a wonderful presentation.
- [76:56]
C
I just want to ask.
- [76:57]
A
The title of your book is basically the Rise and Fall of Britain's Captain of Industry.
- [77:03]
C
So there's a fall behind it.
- [77:04]
A
And actually we can see that Dr.
- [77:06]
C
Turn said about the.
- [77:08]
A
There's been a 20 year moribund IPO market in the UK the last 20 years. And to go back to history, if you look at family businesses in the UK you mentioned about family businesses, for example, we take the example of Roundtree, which we know Roundtree is The maker.
- [77:26]
C
Of KitKats, you know, fruit gums.
- [77:28]
A
They got bought by Nestle, which then became basically they were from Europe, York, and then they stopped being from York, they became a Swiss company. And then many UK companies became targets of international companies. Unilever probably is one of them as well. So do we think that the fall in your title of your book is due to the fact that they were family Businesses and they got bought, they became targets. You said that the genealogy of a family business is a lottery. You gave the example of this gentleman.
- [78:01]
B
Who decided to give away the business.
- [78:03]
C
And go into arts.
- [78:05]
B
Do we think that the fact that.
- [78:06]
A
They were family businesses and they give.
- [78:08]
B
Away those businesses, they became targets to international companies.
- [78:12]
A
And that's one of the reasons why there was a fall in Britain's business.
- [78:18]
C
So this is a really interesting question, also a question that Michael Watson from Cup asked us at one stage as well. Why this title? The rise really is to do with the professionalization of the CEO role. Okay, so people being in the CEO role, not because they were an aristocrat or had the family name, but they actually had come through a professional route and become a CEO and had been professionalized to some degree. The fall really speaks to, to this idea of not to become unprofessional, but that with high salaries, with the bad behavior, the corporate governance problems, that's what we see as the fall in the title. So it's more of a, I suppose, our take, a moral take, would you say, Michael, an ethical take on this?
- [79:11]
A
It's definitely part of it.
- [79:12]
C
Yeah, it's part of it.
- [79:14]
A
But to your point, I want. So there's a real problem in the British corporate economy about founders and entrepreneurs being able to succeed. Now, the decline, you absolutely right. The decline in the family firms is about them becoming targets and particularly targets for foreign corporations and foreign takeovers. That is definitely a trend. One of the biggest things we find is the decline in the number of founders who are in our sample. And this declines dramatically. So by the 2000s, the number of founders who are running FTSE 100 companies is tiny. You're talking about two, three individuals. So what does that say? It can say different things. One is that it's very hard to grow a company from nothing to the scale where you can be a FTSE 100. However, if you look at the concomitant rates of founders running SMP's 500 companies, you can do this. And the Americans are just much better at, you know, enabling an entrepreneurial environment in terms of risk taking, in terms of individuals from much younger ages seeing this as a good career option and something they want to pursue, and capital markets that will back them. Okay, so one of the biggest issues, I think in the fall, yes, the decline of the family fund firms is indicative to me of that and certain other moral things about purpose and values. But the decline in founders, I think is really problematic. And I think this is something that everybody should be thinking about is why Britain isn't as entrepreneurial as it should be. Why is this happening? Is it cultural? Is it financial? Is it about how we prepare people to go out into the world of work and take risks? I think all of this is things we should be thinking about.
- [81:02]
B
Yes, I'm over here on the end.
- [81:04]
D
Thank you so much for that really interesting talk. My question was about on your last slide, you give four things that you determine is makes a good CEO. And during your presentation you say that accountants and engineers don't make good CEOs. But I was interested just on what basis you came to that conclusion and.
- [81:28]
A
Whether that has changed over the years.
- [81:31]
D
And what you saw in the data.
- [81:33]
C
Okay, so it was really to do with the way the accounting profession and the engineering professions in the UK prepared people. Unlike other countries where their preparation would have been more broad based, it was very narrow in the UK and that's what we think made them typically bad CEOs. Now, we do give some counter examples of accountants who were brilliant CEOs. And there may have been times during history where you actually needed accountants. These large, complex bureaucracies emerge. You need people who understand information flows and how to organize. So we don't want to be going away thinking, yeah, let's get the accountants. But yeah, it's part of their training. It was more their training that we zoned in on rather than the individuals or the role itself.
- [82:27]
A
And it's also worth pointing out that as a profession, they are professional from, you know, the 19th century. This is really important. We don't have universities churning out trained managers. We don't have business schools.
- [82:41]
C
We don't have.
- [82:41]
A
What we do have is accountants and engineers with professional qualifications and actual training being developed. So they play a really important role for substituting for a big gap in the sort of the UK corporate market. But as John says, there is a bunch of issues then that come with sort of quite siloed ways of thinking about firms.
- [83:04]
C
And the counterpoint to that is the United States. At the very, very same time, they're not having firms run by engineers or accountants, they're having firms run by managers. People have been prepared for this role and gone through extensive management training.
- [83:19]
B
All right, let's go here. I'm sorry, I realized I was too strong on this side. So we're going to get some questions from over here.
- [83:25]
C
Yeah. Again, thank you for your time this evening.
- [83:29]
A
Looking as an example at Fred Goodwin.
- [83:32]
C
And the a AMRA acquisition, what do.
- [83:35]
A
You believe are the most effective ways for Boards or institutions to prevent like catastrophic decisions being made by CEOs in the future.
- [83:43]
C
So the government report into the RBS failure goes into detail in terms of the board and the failures on the board. The problem with the RBS board is, apart from there weren't people pushing back against Fred Goodwill, is there was not very many people with banking expertise on the board. The chairman of the board didn't come from the banking industry. And this was a huge break in banking. Pretty much you had banks being run by bankers. Goodwin himself wasn't a banker. He was a trained accountant. Okay, I don't want to keep going on. He was a trained accountant. And you know, the fellow board members around him, they, they didn't have banking, they didn't have industry expertise because there was this belief that you just need generalists in the boardroom keeping check. So that was a big, big problem in the case of RBAs.
- [84:35]
A
That's a great question. And this is something we've increasingly been coming back to that by understanding the change in the CEO, the individuals and the role. Actually, it's about understanding the role of boards and the governance arrangements to enable them to keep, keep them in check. Having relevant expertise and knowledge. Probably again, you know, not being too big so that you actually have concentrated boards, that you have people who are willing to sort of really deeply invest. So not having busy boards, people who are on lots of different boards, you know, who actually have concentrated interests and expertise and actually are really prepared to push back rather than sit there and pocket the money. I think that is really, really critical. But that is something we've been thinking a lot more about.
- [85:23]
B
So you have time for one final question and I'll give it to Chris Mins. Yeah.
- [85:28]
C
So I'll take the opportunity to thank our three visitors for doing their roles so well. So listening to the second half of the talk, this was like economic history of rent seeking. That's what I was thinking. So I like the thinking about corporations, corporate governance and labor market institutions. But is it the case that growing global economy, less competitive than the textbook market, is just providing more opportunities for CEOs to soak up that surplus? Thank you. Yes. This is. So the people have asked us about, you know, journalists have asked us about high pay of CEOs in the United States and Silicon Valley. Those individuals, individuals own large chunks of those corporations different. Whereas you look at CEOs of the vast majority of CEOs that we look at, they don't own very much in the way of the companies. So they don't have skin in the game and it does appear to us to be rent seeking.
- [86:25]
B
We would agree.
- [86:26]
A
Yep.
- [86:27]
B
Well, let's, let's. You're preempting me here. Let's give our speakers a round of applause for a really fascinating.
- [86:41]
D
Thank you for listening.
- [86:42]
A
You can subscribe to the LSE Events podcast on your favourite podcast app and.
- [86:47]
D
Help other listeners discover us by leaving a review.
- [86:49]
A
Visit lse.ac.ukevents to find out what's on next. We hope you join us at another LSE event soon.