2001
German companies look to long term
By
Jon Moynihan
The Financial Times,
06 September 2001
Sir,
Andrew Gowers' fascinating open letter to Gerhard Schroder, the German chancellor ('Don't worry, be happy', 3 September), contains many truths, not always appreciated, about modern Germany. However, it also inadvertently perpetuates one common myth - that Germany is less 'capitalist' than the 'Anglo-Saxon' UK.
My company has surveyed a large number of companies in both Germany and the UK on their attitudes to managing for shareholder value. We asked 50 questions, positive responses to each of which have been shown - in a survey spanning a dozen leading economies - to be correlated with superior returns to companies' shareholders. To our surprise, we found that German companies scored higher in their responses to these questions than UK companies.
In particular, modern German companies invest more for the future, in research and development and in expenditure to build new-generation, differentiated products, than UK companies.
Our conclusion was that the average UK company is too short-termist, focusing on increasing the next quarter's earnings by cost-cutting measures that starve the future and paying cash out in dividends rather than reinvesting it for long-term success. This short-termist approach has been shown, both academically and empirically, to reduce shareholder returns, both immediately and over time.
The one area where German companies fall down is in how they compensate their top management. This happens to be (according to the results of our survey) the single most important thing to get right if shareholder value is to be maximised. With this one exception, however, it appears - surprisingly, perhaps, to some - that German companies are nearer to the US model (which our survey shows is most closely aligned with the creation of shareholder value) than the UK is. This is not to say that German companies would not become even more successful (and capitalistic) were Mr Schroder to adopt some of Mr Gowers' recommendations!
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