Mighty trees, poorly rooted

January 18, 2008

Over the past years many listed companies fed on the ample availability of (shareholders’) equity to grow into powerful organisations with a global reach. And once they had tasted this, they wanted more. So stronger leverage and growth were pursued with ever-increasing voracity, often under pressure from those same shareholders. In this process executive directors increasingly allowed themselves to be swept along by the dynamics of the capital market and, as a result, gradually lost touch with their own companies.
And that is not good. Because though customers, employees, suppliers and society (particularly the taxman) also often reaped the benefits of this unbridled corporate growth, they increasingly felt neglected. The stakeholder balance has been lost and in some instances a struggle seems to have arisen between shareholders and “the rest”.
This makes companies vulnerable. A powerful tree that is poorly rooted is the most likely victim of a fierce winter storm. So company directors must clearly continue to seek the discipline of the capital market: growth and competition are key to success in a globalising economy. But this discipline may never undermine its roots within society and its ties with the customers, the suppliers and, above all, the employees themselves. Because companies need firm roots to withstand the pressures from predators in the capital markets.

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