Who are you really running your business for? The question can provoke answers ranging from the financial to the moral and even psychological, but my concern today is strictly practical. Do you know who your bosses are and to whom you are ultimately accountable?
Readers who run public companies may reply with the simple answer: shareholders. As the chief executive of a public company, you have been hired to manage shareholders' capital with a view to growing it and generating healthy returns.
But this version barely begins to describe the reality of the relationship between companies and their investors today. Eyewitness accounts from the battlefield of international business tell of a situation that is much less neat and orderly. From the business point of view, demands for action and results have speeded up.
What is worse, these demands are made by "owners" who are elusive, unpredictable and almost anonymous. CEOs must be beginning to feel a bit like Butch Cassidy and the Sundance Kid, who keep asking of their relentless pursuers: "Who are those guys?" It seems to be getting harder all the time to maintain constructive relationships with shareholders.
Last year one of the UK's most distinguished business leaders made these comments in a speech to the Investor Relations Society:
"The pressure on the sell side has, in my view, made analysts very focused on the near-term, and in some instances their understanding of our business fundamentals is less than it used to be . . . Research tends to be more sensational, and on roadshows there is increasing pressure to put us in front of hedge funds rather than traditional long funds.
"It may be old-fashioned but I view a shareholder as a shareholder - someone whose interests in the success and prospects of the company lasts more than three weeks . . . I have real concerns about promoting the use of my company's stock as hedge-fund plays - just as I would if they were chips in a casino."
The speaker was John Sunderland, president of the CBI, the employers' body, and Cadbury-Schweppes chairman. While Cadbury's chocolates may have soft centres, its chairman does not. He was not speaking out of wistfulness or the desire to see cosy relationships with shareholders.
In the US, too, there are concerns about the way in which companies find themselves over-promising to investors on a three-monthly basis. As the Financial Times reported this month, Pfizer, Citigroup, Intel, Motorola, Ford and General Motors are looking at how to develop a more meaningful exchange with investors based on their longer-term prospects.
Investment bank Merrill Lynch recently encouraged its global research analysts to ignore company guidance when preparing their forecasts. Richard Bernstein, Merrill's chief US strategist, said: "It's not just the hedge funds, even long-only funds have shortened their time horizons far more than management should."
Hedge funds make a convenient whipping boy but they are not all the same. Some are managed by sophisticated investors who are interested in generating sustainable long-term returns. And, while hedge funds account for up to half the trading flows on the London and New York stock exchanges, they actually control a very small percentage of issued equity.
Nonetheless, some observers believe that, with the increased speed and impact of the interventions made in the markets, capitalism itself is on the verge of significant change.
Mark Goyder, who runs the UK-based think-tank, Tomorrow's Company, believes we are entering a third phase in the history of capitalism, following the 19th century "owner-entrepreneur" model and the 20th century "principal-agent" model. In the last century - the era of institutionalised ownership - two mechanisms were applied to influence the actions of managers: ownership and share price, Mr Goyder says. But in the 21st century the ownership mechanism has begun to break down; shareholders are no longer behaving like owners. And where "shareholder value" may once have referred to the long term creation of wealth, today's short-term financial investor demands action that can influence the share price even on a daily basis. Add in the misguided belief, known as "agency theory", that management's remuneration has to be closely tied to share prices, and you have a recipe for very short-term thinking.
Others, such as Joseph Bower, a professor at Harvard Business School, think this situation cannot continue indefinitely. "I think in another 10 years our laws will be very different," he says. "It's not at all obvious that very short-term investors should be regarded as owners. They are basically speculators to whom we are giving the rights of ownership."
How to deal with the problem? Maybe the price mechanism can be used here, too. A survey of pension fund trustees conducted in the UK by the Trades Union Congress found that 69 per cent agreed with the statement that "there should be incentives for investors to hold shares for the long term rather than trade them", while only 15 per cent disagreed.
In the end, loyal investors are better to work for than footloose ones. This may sound like the traditional (and unhelpful) "I wouldn't start from here" advice. But, you know, I really would not start from here. Who are you running the business for? Unfortunately the best solution is not available: sack some shareholders and hire new ones.
