The bosses who are too pow­er­ful for any­one’s good

Mark Zucker­berg, Ray Kelvin and Ivan Glasen­berg dom­i­nate their busi­nesses but as trou­bles mount they be­come part of the prob­lem

The Daily Telegraph - Business - - Business Comment - Jon Yeo­mans

The best new year’s res­o­lu­tion, so they say, is to never make a new year’s res­o­lu­tion at all. Mark Zucker­berg must be feel­ing that way. After declar­ing in Jan­uary that this was the year he would “fix Face­book”, he has achieved al­most the com­plete re­verse, with the so­cial me­dia gi­ant look­ing more bro­ken and des­per­ate with each pass­ing week.

The de­ci­sion of MPs this week to re­lease con­fi­den­tial doc­u­ments that Face­book tried to keep se­cret is deeply em­bar­rass­ing for Zucker­berg, re­veal­ing some of his per­sonal in­ter­ven­tions in cases where staff pro­posed cut­ting off data sup­plied to com­peti­tors. The cache of emails also sug­gested that while Face­book did not break its long-stand­ing pol­icy of not selling user data, it cer­tainly wanted some form of “rec­i­proc­ity” from part­ners.

It’s been a year of hell for Face­book, with scan­dals ar­riv­ing al­most ev­ery fort­night. But it is just the most high-pro­file ex­am­ple of a com­pany dom­i­nated by a ma­jor share­holder and pow­er­ful chief ex­ec­u­tive that is strug­gling to re­act when things go wrong. Zucker­berg, with around 60pc of the vot­ing rights, isn’t in dan­ger of be­ing top­pled any time soon, de­spite the ire of some smaller in­vestors at this year’s AGM.

Closer to home, re­tailer Ted Baker has been rocked by ha­rass­ment al­le­ga­tions against its founder and big­gest share­holder, Ray Kelvin, for his “forced hugs” pol­icy. Shares fell 23pc over three days as in­vestors weighed the pos­si­bil­ity that the com­pany might ul­ti­mately be forced to oust its driv­ing cre­ative force. The stock clawed back some of the ground yes­ter­day after it promised to punt re­spon­si­bil­ity for in­ves­ti­gat­ing the claims to an ex­ter­nal law firm.

Min­ing gi­ant Glen­core also has a pow­er­ful chief ex­ec­u­tive at the helm. Ivan Glasen­berg is not the FTSE 100 com­pany’s founder, but he has been in­ti­mately in­volved in shap­ing its di­rec­tion since the Nineties and for­mally took the top job in 2002. He is the sec­ond big­gest share­holder with an 8.6pc stake. Glen­core an­nounced a reshuf­fle of its top man­age­ment ear­lier this week as it seeks to move on from cor­rup­tion al­le­ga­tions re­lat­ing to its ac­tiv­i­ties in the Demo­cratic Re­pub­lic of Congo that have sparked a US le­gal in­ves­ti­ga­tion. That ef­fort lasted all of two days be­fore pros­e­cu­tors in Brazil an­nounced the com­pany was un­der in­ves­ti­ga­tion on sus­pi­cion of pay­ing bribes in the long-run­ning “Car Wash” mon­ey­laun­der­ing scan­dal.

The ques­tion for in­vestors in all of these com­pa­nies is: at what point does a vi­sion­ary chief switch from be­ing an as­set to a li­a­bil­ity?

Usu­ally a tip­ping point ar­rives when it be­comes clear the in­di­vid­ual’s value has ex­pired, or no longer out­weighs the risk. The dan­ger for com­pa­nies such as the three above is that the cor­po­rate cul­ture has be­come too en­twined with one in­di­vid­ual, or that the in­di­vid­ual sim­ply isn’t the right per­son to over­haul an en­trenched cul­ture. Are Face­book staff be­ing tac­itly en­cour­aged to do things even when they know “the risk of PR fall­out here is high”, as one staffer put it in an email re­leased this week? Are Ted Baker work­ers be­ing let down be­cause the sys­tem gives them no re­dress? And has Glen­core’s pushy cor­po­rate cul­ture – with traders al­ways seek­ing the best deal – re­sulted in ac­tions that have crossed the line?

This brings us to the other big prob­lem when pow­er­ful bosses are also ma­jor share­hold­ers: their com­pa­nies usu­ally lack strong enough cor­po­rate gover­nance to rein them in. So here’s an easy start­ing point for Zucker­berg’s new year’s res­o­lu­tion in 2019: if he wants to fix Face­book, he should an­nounce plans to look at equal­is­ing the com­pany’s dual stock, which gifts him dis­pro­por­tion­ate vot­ing power, and give his board real clout to hold him to ac­count. He won’t, of course, and so the blame for what­ever hap­pens next year will be laid squarely – and rightly – at his door.

‘The dan­ger is that the cor­po­rate cul­ture is too en­twined with one in­di­vid­ual’

Is­su­ing an ar­rest war­rant for a se­nior ex­ec­u­tive at one of China’s big­gest com­pa­nies while she is chang­ing planes in Canada is a pretty ef­fec­tive way of get­ting peo­ple’s at­ten­tion. The de­ten­tion of Huawei’s Wanzhou Meng pend­ing ex­tra­di­tion to the US prompted the mar­kets to tank, as in­vestors rued a ma­jor es­ca­la­tion in the trade war be­tween the US and China.

Read­ing the runes of the Trump White House is not easy, but it is worth not­ing the ad­min­is­tra­tion has a pat­tern of hit­ting out, wait­ing to see the im­pact, and ad­just­ing the fi­nal penalty ac­cord­ingly.

Wit­ness the sanc­tions on oil ex­ports from Iran; at the eleventh hour Trump, al­lowed eight of the big­gest buy­ers of Ira­nian crude tem­po­rary waivers to carry on as be­fore.

It’s pos­si­ble the at­tack on Huawei is an open­ing gam­bit de­signed to force con­ces­sions on China over IP theft and spy­ing that will re­sult in diplo­matic to­ing-and-fro­ing and a com­pro­mise. There’s also ev­i­dence that US gov­ern­ment de­part­ments are quite happy – per­haps even en­cour­aged – to pur­sue seem­ingly con­tra­dic­tory ends; thus Meng was de­tained on the same day Trump and Xi had their sup­pos­edly truce­bro­ker­ing steak din­ner at the G20 sum­mit. This will be scant con­so­la­tion for the mar­ket, which tum­bled a mere four days after cel­e­brat­ing an ap­par­ent dé­tente. But if the US does not have a clear goal in mind, this might only be a taste of what’s to come.

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