Accountability and Responsibility

A wise woman once told me that you get the government you deserve. It is one's responsibility to carefully consider potential political representatives and exercise their right to vote. A low voter turnout is usually exploited by incumbant representatives. Antipathy on the part of an electorate and the inevitably careless stewardship of compacent government is the fault of every eligible voter within a democracy.

The same could be said with regard to the running of a company. The quintessential essence of any private enterprise is that the stewardship and resulting profits or losses thereof are the responsibility and reward of its owners. The difficulty associated with running any organisation by committee increases exponentially with size so, most companies appoint a board of managment which is ratified by the shareholders at each AGM. No less than the democratic process of electing a government, the formation of a board of management is one of the most vitally important consideration for the shareholders of any company. The most important consideration however, is whether the business activities of the company are understood and accepted by the shareholder. This is not always the case.

Much in the same way that the average person in the street is capable of taking a tip on a horse that they no nothing more than the name of, and put £10 to £20 pounds, or more, on the fortunes of its racing career, there are intelligent, hard-working people who will buy shares in a company with little more understanding of their operations than the knowledge of one of their high street brand names. When these companies then lose money or, even go bust, the same people who took little care in researching the operations of this company then cry foul and demand all manner of government intervention. The necessity for rules enforcing responsibile corporate governance is without reproach however, the failure of a company due to the shortcomings of its business model or, indeed, the execution thereof, is ultimately the fault of its shareholders. By owning shares in a company, a shareholder implicitly acknowledges their endorsement of its executive board and the business practices it employs.

The sage of Omaha, Warren Buffett, has always said he only ever invests in companies he understands. An investment philosophy the man in the street would do well to practice.