The role of a Director

So it seems that there will be no saving Rover, a UK owned and based medium scale car manufacturer; despite the UK government's attempts to sell the company off to SAIC off China or to prop it up with 'loans' before the upcoming election. It is not surprising, since BMW gave up on it and it became British again. It only makes a few models and only sells a few cars. It does not sell Internationally, nor manufacture internationally, and can certainly not compete with the Fords, GMs etc (themselves struggling and only making profits on their financial operations).

Recently the Directors have been forced to put more of their own money into the company to keep it going -in fact they have made about £40million in 5 years of ownership. Many were surprised at the sudden deterioration of the company and it only came to light after 2 separate auditors' reports, that the company was losing £20million a month.

One may wonder how a company on which 20,000 direct and indirect jobs depend, can go bankrupt so quickly, having lasted 5 years without much initial investment (although BMW paid off its existing debt). One aspect seems important to me; that the company was taken private, owned by the 'Phoenix Four' originally.

Its not just that I am suspicious that the Directors made £40 million from their 5 years of work, but I am, especially as they got the company for a token £5. I wonder about the transparency of many private companies. Since the high profile corruption cases in US, Italy and elsewhere, the trend for increasing public companies' transparency and reporting requirements has quickened. A result has been for more companies to go private, arguing that some requirements are too restrictive on their organisations.

Many of the World's most successful businesses have had their turn being privately owned, and many are still privately owned. Yet, not many people know much about these businesses -they are much lower profile, they have less stringent public reporting standards (yet the same legal standards), however many of their owners are significantly richer than the Directors in listed companies or the shareholders (based on profit from their shares).

I'm not going into a full discussion on this, but the point I want to highlight is how ethical is a private business? -not because it is private, but because it has less legal reasons to be transparent, and transparency is a key part of governance, ethics and responsible leadership. Some private companies may be more responsible than listed ones; but one thing stands out. From a UK perspective, there are many different forces involved in monitoring businesses. The more, the better, I think. Private companies have less, and thus the temptation is greater to behave less responsibly.

Some of the forces include investors analysing their investments, the media raising awareness of issues and of employees having access to information about their company. The purpose of this post is not to criticise necessarily the private businesses, or those running them (or taking public businesses private), but just to stress the importance of these issues in responsible leadership.

Leaders have a responsibility to their stakeholders to be ethical and as transparent as is commercially viable. The huge amounts of pressure on companies in recent years from various sources (including NGOs) has, I believe, made many businesses more responsible -they are more aware of their responsibilities, and those they impact are able to have more of a say.

From a Chinese context it will be interesting to see how the financial markets develop here -what rules will be developed etc as well as what role the media, NGOs etc will play. Noting the continuing frequency of corruption at some of the highest levels of businesses here (and it is a fantastic thing that this is being publicised, and that those responsible are being punished), one
hopes that as these forces develop, Chinese businesses will also be more responsible.