Are mangers really better at managing other people’s businesses?

The vision, passion, hard work and determination of old school entrepreneurs - who risked their capital to create and manage businesses -resulted in employment and prosperity for generations of us. If it was possible to bring back a few of these successful entrepreneurs from previous centuries, I believe they would be seriously shocked to see a new world where many business owners are no longer in control of their companies. A world where senior banking officials can earn much more without having to risk any of their own capital, than factory owners putting their own money on the line and employing hundreds of people.

Over time, the idea that companies are better managed by professional mangers as opposed to their owners, has taken hold. Today in Britain, most large companies are managed by managers with no ownership interest. At the same time, the ownership of large corporations has become so fragmented that shareholders no longer have any real control or say in the way that these corporations are run. This has resulted in unprecedented control and absolute power in the hands of the managers.

However, the recent shameful performance of many large UK companies such as British Airways, has shown us that this formula does not work. The idea that managers - who have no vested interest in the business - will perform better than owners - who are prepared to go to any length to protect and make their business successful - is absurd.

Furthermore, it has been proven time and time again that no amount of rules or regulations can stop managers from taking risks and making decisions that are in their own interest at the expense of their companies. The collapse of the Royal Bank of Scotland is a good example. Sir Fred Goodwin wanted to build a financial empire. He decided to risk all of the assets under his control to achieve his dream. After all, why shouldn’t he? It was not his money or his children’s inheritance that he was gambling with but other people’s money. How perfect.

It is not surprising therefore, that as a consequence of ongoing reckless investments with other people’s money, irresponsible lending and bad management, Britain recently faced its biggest financial crisis in modern history. In response to this crisis, the previous government ignoring the will of the market, wasted billions and billions of taxpayers money saving bankrupt banks that were badly managed, lacked proper control and did not deserve to be saved. “Insanity” could be defined as “doing the same thing over and over again and expecting different results”. Perhaps in synonymic terms we could define it as “allowing banks to continue doing what they were doing as before, but expect them to succeed this time”.

I believe that the UK government should have bowed to the will of the market and allowed bankrupt banks to fail. In time, these unsuccessful banks would have been replaced by many smaller banks. We could have relived an era when real capitalism existed; where banks were owned and managed by their owners rather than managers whose personal interest conflicted with the interest of the bank. Of course, the transition would have been hard, but as they say short-term pain is necessary for long-term gain.

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