Evelyn de Rothschild on Globalisation


Globalisation must give rise to a better form of capitalism, but shareholders, banks and borrowers should proceed with caution.
by Evelyn de Rothschild

August 31, 2007 11:30 AM

Is the capitalist system too lax? Has it changed in recent years, making it all too easy for people to participate at all levels?

With so much money available, it is easy to wonder whether the system can cope. The mortgage market is beset by problems, hitting those who can ill afford it. Perhaps some of these problems are cyclical; when you do have the cash-flow following a drop in inflation, you have to face up to these effects – and this requires discipline.

Are shareholders beginning to wake up to their responsibilities and taking more action to ensure that they, not the highly paid directors, own the companies? Certainly in the case of family businesses, the shareholders should play a bigger part and make sure things are managed correctly.

It sometimes seems that shareholders’ interests are taken into account only at a superficial level, in the sense that they see annual reports, or they see the quarterly and half-yearly reports, but do not make in-depth comments about management. Only recently, it seems, action taken by hedge funds, which own very few shares in the company, have made it possible to highlight the opportunities of change in the company concerned. Whether this is a good move or a dangerous one remains to be seen.

At the same time, boards and management must be much more consistent in their relationship to shareholders. Institutional shareholders must also be more active, and altogether there must be a good balance and cooperation between the two. Information is readily available, but sometimes it is not put to good use.

In the wake of the collapse of the US sub-prime mortgage market, it is reasonable to ask whether banks are too eager to make more money by giving up their products without the same degree of discernment they have had in the past.

We may find ourselves in a situation that gives rise to government intervention to create further regulation. Of course, it’s a balancing act, and one that can only be managed if people have a sense of discipline within the realms of what they are trying to achieve.

However, one thing’s for sure: globalisation and the opportunity for further investment around the world must give rise to a better form of capitalism. We should remain open-minded about foreign investment; rules and regulations are in place and are there to be abided by.

In the age of modern communication, there is no reason why we shouldn’t have more company details available to us, as well as careful lending policies. Sales reps, and there are many of them, should also in some measure be either licensed in their efforts or have some form of discipline imposed in making returns to the local authority. It can always be said that profit, by default, is not realistic. If that is so, then we should proceed with caution as we move into this new age of total globalisation, and strive to realise the opportunities it brings for many people across the world.

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