• Shareholders are putting increasing pressure on company bosses to generate profit in markets with no growth
• Doing business anywhere beyond Austria to the east, or below Spain to the south, UK bosses encounter corruption as standard practise
• Through Brexit, the west is dismantling the German model of ‘Mittlestand’ – family-owned companies that place a premium on long-term stability

UK business leaders are being increasingly pressured into making damaging decisions as global markets stagnate and shareholders panic due to their inability to realise desired returns on investment, says Andrew Kakabadse, Professor of Governance and Leadership at Henley Business School.

Discussing his ongoing research into the challenges faced by corporations across Europe, Professor Kakabadse added that the UK could learn much from Germany’s economy, which thrives on the development of small to medium sized enterprises (SMEs) and family businesses.

He explains: “Most company bosses are reasonable people with immense responsibility in a mature and unresponsive market.

“Shareholders, particularly those representing pension trusts, demand high returns, which create an interlocking ‘circle of need’ to get as much out of the market and then exit as quickly as possible. Why? Because pension funds have to pay their own members.”

“It’s not that shareholders are greedy, but they are exerting more pressure on company bosses to generate massive profit, which is very difficult in a market with no growth.”

This phenomena, adds Professor Kakabadse, is endemic of businesses focused on outdated western models which, if not addressed soon, will likely result in another 2008-style market crash.

“In the UK and US we have become particularly overexposed to public companies, and are still reliant on what is essentially 1960s thinking,” he continues.

“In addition, if you do business anywhere beyond Austria to the east, or below Spain to the south, you immediately encounter corruption as a standard practise. So if you have to trade there, what can you do?

“In trying to balance wealth creation and employment growth, corporations participate in ethically questionable practices, using external agencies to keep a distance from what is happening.

“This makes the problem even worse. Doctors, teachers and other public servants in Russia, Romania and most African countries hate the fact that their homes are becoming synonymous with bribery.

In fact Professor Kakabadse’s research concludes that up to 85% of western businesses bribe as a matter of course. “Their choices are limited,” he continues. “It is either accept local conditions or exit that market.

“Ultimately, shareholder demand for short-term growth is creating ever greater instability in most societies around the world.”

So what alternative do western businesses operating globally have? Professor Kakabadse believes that much can be learnt from countries where there is a less immediate pressure for instant market growth.

“Why do we gamble stocks and shares like putting bets on horses?” he adds. “The German Dax is one of the smallest stock exchanges in the world in a country where the market is firmly based on family businesses which ultimately benefit the community.

“In Germany ‘Mittelstand’ has more to do with corporate philosophy and practices than with business size or product. In general terms Mittlestand are family-owned companies that operate conservatively and place a premium on long-term stability and investment in products and services rather than mergers and acquisitions, rather than rapidly increasing profit margins.

“Mittelstands also make considerable investments in employee benefits and well-being, as well as in the local community in which they operate, generating a great deal of loyalty from management and employees, as well as from local residents.

“Most importantly, they are extremely successful. This can be clearly witnessed through their apprenticeship programs. Recent developments show that Germany’s under-25 unemployment rate was the lowest at a European and Member State level at 6.5%.

“By their very nature family businesses and SMEs have to remain dedicated to day-to-day operations and, in the case of continuous change, smart companies are achieving competitive advantage by better harnessing the skills of their people.

“Unfortunately through Brexit the west is currently dismantling the German model, at the same time as the Chinese are attempting to mimic it. They are investing heavily in moving people out of the countryside to create wealth and employment in their cities. In 20 years’ time, the Chinese could well have finessed the German model as it is today.”