Corralling the animal spirits

THE twin catastrophes at Volkswagen and Glencore have a common thread. The governance of both companies leaves a huge amount to be desired.

In the case of VW, the once muchpraised Rhineland-Westphalia model of capitalism, with its very lumpy shareholder register and lack of distinction between shareholders and directors, allowed an inbred culture where one answer to a crisis created by wholesale emissions cheating and possible fraud at VW was to bring in the head of Porsche, Matthias Müller.

The Porsche-Piech family happens to be the largest VW investor with a 50.7pc stake and Porsche is a division of the holding company.

So in its hour of need VW opted for a touch of the same-old, sameold when clean hands were required. VW may yet have to rethink the choice of Müller.

Governance at Glencore is also under scrutiny.

On the surface it is an exemplar of red in tooth and claw Anglo-Saxon capitalism with its commodity trading model and liking for bids and deals in natural resources. But the company operates with the overhang of a dominant shareholding and has moved in recent times from one controversial chairman Simon Murray to another in Tony Hayward.

The latter’s experience of corporate and governance meltdown at BP looks to have done nothing to gird him for a second at Glencore.

The 36pc-plus decline in VW’s share price since the diesel pollution scandal was revealed also has cast a pall over brand Germany and Frankfurt’s DAX index.

One doubts if VW would be allowed to go bust. The state of Saxony and the German government have too much riding on it in terms of jobs and investment.

In the same way as the Obama administration rushed to the rescue of General Motors in 2009 so would Angela Merkel do the same for VW. What is clear is that the car maker is too large and complex. A stronger board would move urgently to demerge brands including Porsche, Audi and Skoda to limit collateral damage and to raise much-needed funds.

At Glencore the solution currently being canvassed is for chief executive Ivan Glasenberg and senior traders to bring an end to the carnage by buying out minority shareholders and taking the company private again.

That potentially, however, would give any future upside to the people who presided over a calamitous decline rather than the institutional investors. Glencore has taken dramatic steps to try to insulate itself from the worst case scenarios in the commodity markets but it has failed to do the trick.

The firm also needs a governance overhaul to fashion a board that is capable of holding the chief execu- tive to account. The recent death of Sir Adrian Cadbury was a reminder of the sensible recommendations of his 1992 report that sought to establish checks and balances in the boardroom and improve financial reporting.

It is shaming that more than two decades on there are still major enterprises that are allowed to flout the rules with apparent impunity simply because the companies appear to be trading well.

Royal Bank of Scotland, the Cooperative Bank, Tesco and Sports Direct, in different ways, all fell or fit into this pattern. It is hopeless to worry about governance after the Lord Mayor’s show.

Corbynomics

MUCH of what Jeremy Corbyn and his shadow chancellor John McDonnell have to say about the economy is plain wrong.

Austerity barely exists. Just look at the direction of public spending and the deficit under the Tory Government.

The City, for all its failings, is all that stands between Britain, an unsustainable trade deficit and a 20th century-style sterling crisis.

And tax rates do go up. Ask the banks, lumbered with a corpora- tion tax surcharge and all of us facing higher insurance premium tax.

Where one does have more faith in what Labour is saying, is in the decision to review the Treasury. No one wants a rerun of the discredited Department of Economic Affairs under Harold Wilson.

But under Gordon Brown the Treasury was denuded of the great economics minds that once resided there – people like Douglas Wass and Nigel Wicks – and they have never fully been replaced. Moreover, staff turnover is very high.

Giving more and better economists a say in economic policymaking, rather than relying on teenage scribblers, would make great sense.

German gamble

PUBLISHER Axel Springer is splashing out £285m to buy the website Business Insider owned by legendary analyst Henry Blodget with Amazon’s Jeff Bezos a minority investor – a consolation prize after Axel failed to secure the FT.

The attraction of Business Insider is 76m monthly visitors and Blodget’s guru-like reputation.

If he were to walk, so would much of the value.