Reach | Research at Newcastle University Business School
History repeating itself Business historian Dr Emily Buchnea found a little bit of history repeating itself as she delved into the complex relationship between companies and financial investors.
r Emily Buchnea D Research Assistant
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orking as part of a team of five academics from Newcastle University Business School and King’s College London, her research discovered that many of the tensions that exist today can be traced back to Victorian times, through the Great Depression of the 1930s and The City boom of the 1980s. The team of academics – Professor John Wilson, Dr Anna Tilba and Dr Emily Buchnea from Newcastle University Business School and Dr Gerhard Schnyder and Philipp Kern from King’s College London – are looking at the relationship between management in British industry, predominantly in manufacturing and retail, and the disengagement between these key decision-makers and private investors in these firms. Long-term strategic planning for a sustainable future versus short-term economic returns on investment is a toxic mix which is not sustainable for business, the research team have found. “It’s a large project on corporate networks which looks at interlocking directorates from 1904 to 2010,” said Canadian Emily, who joined Newcastle University Business School as a research assistant a year ago.
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“What we are looking at is the extent to which ownership changed in non-financial institutions based on investors from financial institutions.” Pension, equity and hedge fund managers, as well as investment bankers buying up shares in publicly listed firms on the Stock Market, is all perfectly legal – their activities producing sometimes huge return on investments for clients. Emily is keen to find out the impact on the companies they invest in. “They are not looking to help with the long-term strategy of these companies and this is the problem, you have owners who only care about making a profit rather than improving the structure of British business,” she said. Emily says she has found a complex interplay between financial and nonfinancial institutions – ownership and control – at the heart of the issue. “We wanted to look at the bigger picture,” she said. “We addressed the current problem, which is investor disengagement and lack of investor control and activism in companies, so we looked back to the historical problems to see where this actually stemmed from. “It can be traced back to the Victorian period, when banks were quite small. They dealt locally with industry so money managers in
banks locally knew a lot about the industries they were involved in. “The problem is when the banks centralised and went to The City a bunch of bankers sitting in London don’t know about industry in the North East or the North West, so they didn’t actually have the knowledge to make a positive contribution to industrial strategy. “They have no personal investment or desire to build a long-term strategy because they are so disconnected from the industries themselves. “We can see as far back as the 1930s that this was a prominent problem in the British economy that was never corrected. “As we have seen a lot of decline in British industry, that’s the historical problem, that these financial institutions are not dedicating their resources to establishing a longterm relationship with industry.” While the focus of the project – due to be submitted as a paper to an academic journal later this year – is retrospective, the team are casting an eye to the future with policy advice on what needs to be done to correct the disconnect. Emily warns. “It is not sustainable – if people are only investing in the short term, there is no longevity in that.”
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