Better than the American way

IT IS a popular assumption that corporate governance and the prosecution of wrongdoers is handled far more efficiently in the US than it is here.

The conviction of American lifestyle guru Martha Stewart on charges of obstructing an investigation into insider dealing is contrasted unfavourably with the absence of any legal actions in the UK over insider dealing, splits or other recent causes for concern.

We are too hard on ourselves. There is much in UK corporate governance that is far superior to anything in America. Indeed, one prominent City figure remarked recently that we should resist talk of Anglo-Saxon codes of governance because this bracketed us in continental European eyes with the Americans - yet the Americans showed no willingness to adopt some of our better practices.

As an example, he cited as one of the great gifts of the British to the corporate governance debate, the separation on company boards of the roles of chairman and chief executive as a means of avoiding an excessive concentration of power in the hands of one person.

The Americans have refused to embrace this simple reform despite repeated evidence that too much power leads to abuse of it.

Equally instructive in a different way are the troubles of Shell and Disney and how their boards have reacted to pressure from institutional shareholders for change.

In Britain, shareholder dissatisfaction has led to the forced resignation of Shell chairman Sir Philip Watts and several other senior figures and may yet lead to the abolition of the two-board structure under which the Dutch and British parts of the business are balanced.

And all this has been achieved by pressure without the need for formal votes, meetings or proxy battles.

In America, where there is huge shareholder dissatisfaction with Michael Eisner, the long-time boss of Disney, shareholders have no mechanism to get him out. Huge pressure has resulted in Eisner simply relinquishing the post of chairman but continuing as chief executive with a lifelong friend and ally in the chair.

What do the contrasting cases show? Both companies are in turmoil. Both have delivered what many shareholders believe to be substandard performance. But in Britain the institutions have pushed and had accepted an agenda for change.

At Disney, where the underperformance is greater, they have achieved very little because US law and practice gives shareholders very limited power to rein in management - even when it is bad.

Which is the more significant in terms of healthy corporate governance: the ability to achieve change in a giant corporation or the overhyped trial of a showbiz icon?

Debt truths

EVERYONE knows Americans are up to their necks in debt, save nothing and live on their credit cards. What few people in this country realise is that we are deeper in debt per head than they are.

With that in mind, it is worth sharing some thoughts on the American debt experience from a recently-published book by Harvard Law School professors Elizabeth Warren and Amelia Warren Tyagi.

They found that those in trouble with debt are not the usual suspects - not the young tempted by the freedom of their first credit cards, the elderly on meagre pensions or, in the main, the random assortment of Americans who lack the self-control to keep their spending in check.

Rather, those who consistently rank as being in the worst financial trouble are parents - usually middle class - with children at home.

Over the past generation, the Warrens say, signs of middle class distress have continued to grow. Last year more people in America went bankrupt than had heart attacks or were diagnosed with cancer. More filed for bankruptcy than graduated from college. More, indeed, filed petitions for bankruptcy than filed for divorce.

Given that our Government wants to adopt American-style personal bankruptcy laws, that may be the shape of things to come here.

Interestingly, it is rarely over-consumption that drives people to the brink but 'essentials' like school fees and health care coupled with a lack of entitlement to any means tested benefits when things go wrong.

So the middle classes are increasingly reliant on house price inflation and the capacity that gives them to take on additional debt to maintain their standard of living.

This all has an uncomfortable ring of truth about it - much more so than the alternative hype about how low interest rates make debt affordable and how consumers have rarely been in better shape.