UK bosses play dangerous game: pay me or fire me
By Christopher Hughes
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The O-word is causing friction between UK bosses and shareholders. Martin Sorrell says he was wounded by a shareholder who said the chief executive of advertising group WPP he had been behaving “as an owner”. Ivan Glasenberg, Sorrell’s counterpart at commodity trader Glencore, has come to his aid, saying it is hard to get a CEO to be entrepreneurial if they didn’t own a lot of stock.
The disgruntled WPP shareholder gave no examples, but presumably the idea was that Sorrell was acting like an imperious owner-leader of a private enterprise, who feels free to ignore the standards of public company life. In an article for the Financial Times, Sorrell countered that with most of his wealth tied up in WPP stock, he acts as an owner in the best possible way. Glasenberg claims that stock ownership is integral to entrepreneurial motivation.
But a boss with a small share of the equity, even if his or her personal wealth is mostly tied into the company, is in a different position from a chief executive who controls a majority of the company’s voting stock. Boards of directors may like the loyalty and commitment shown by big equity positions. That, however, shouldn’t give the chief executive the right to behave like an outright owner.
Sorrell and Glasenberg were instrumental in building their respective firms. Both decided they needed to access the public equity markets to fulfil their ambitions. The decision to go public makes them no more than co-owners. The other shareholders can take comfort that the boss shares their fortunes – but only if the chief executive actually acts like a co-owner rather than an outright owner. That means engaging constructively with fellow shareholders, not getting into massive bust-ups over remuneration.
Glasenberg said that a vote against the board’s recommended pay package for the CEO is a vote against the CEO. Not so – it’s a vote against the board’s judgment. But a boss who said “pay me this package or fire me” would not be acting like a responsible owner. It would be holding fellow shareholders to ransom.