“Running businesses differently”- Andy Haldene

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Date: 3 March 2016

Venue: Alliance Manchester Business School West

Andy Haldene started his talk with a question: “Who owns a company?” The majority answers from the floor undoubtedly is a shareholders, the one who claim the company’s profit, have a voting and control rights over company board and management, as well as they whose the company’s objective priority. He then stated that among a majority of general public do not trust public companies, especially big companies. Why is this happening?

Whether it’s excessive executive remuneration, unethical practices, the use of monopoly or oligopoly powers, or too much focus on short-termism, the traditional corporate model has faced a rising tide of criticism in recent years.

According to the Bank of England’s chief economist, British company are giving back too much money to shareholders instead of diversifying their portfolio investment strategically. He counselled that firms were “eating themselves” by prioritising the shareholder financially, focusing on dividend payout ratio over investing their excessive earnings on something else.It seems like he did not agree the way corporations are run, condemning the company’s management of serving the short term interest of shareholders at the expenses of the wider economy. Indeed, this is the main reason why the world economy has been at subpar.

Andy Haldenesaid the UK and the US should look at different models of corporate governance that place more diversified weight on the interests of employees and customers.The extraordinary intervention from one of the bank’s highest officials follows growing concerns that the corporations’ failure in the UK and the US to implement long term governances sufficiently will obstruct the country’s economic growth.

If we relate his statement to the Malaysia’s economic perspective, undoubtedly the government-linked companies (GLCs) such as Khazanah Nasional and Permodalan Nasional Berhad are, currently literally among the most widespread and prevailing in the world in terms of capitalisation, market presence and socio-political mandate.These big corporations statistically have been contributing their investment to the public interest especially for local community in Malaysia as well over worldwide. However, the question we need to ask ourselves is will these gargantuan investments be affected if a new economic policy that imposing new trade barriers and regulations such as a newly signed trade agreement like TPPA failed to favour on local corporations? How far Malaysia corporate governance be protected by the state? Undeniably, any failure or lack of enthusiasm to openly acknowledge these adverse eventualities and Malaysia political consequences often precludes vigorous of GLC performance and their preparedness.

He also reiterated that raising interest rates in the near future will not be his decision even though in the situation when US might raise its interest rate for boosting their market. And he said there were economic risks across the world that could still hit Britain. “For me, the combination of a still-healing economy, very low price pressures and a wobbly world means that there is no rush to move rates from where they are right now. We (The Monetary Policy Committee) will responsible for setting interest rates at the right time on rates and base any future decision on the factual data.” The last time they changed was in March 2009 after its “deepest-ever” recession in 2008. Some economists say that Britain interest rate will remain low as at 0.5% until 2021. He added, “What for you pay something at the premium when you can pay at par?”

 

Mohamad Sharif Aidid Bin Mohd Daud

BA (Economic and Social Studies)(Hons) Accounting and Finance University of Manchester, UK.

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