Sale of the Supermarket Morrisons
By Feargus ORaghallaigh
Feargus was a regular contributor to this magazine who died recently and we are publishing the article by him which, although published elsewhere, has not been published before in Labour Affairs. We are doing this as a reminder of his deep knowledge and analytical powers which this journal will sorely miss.
The article we present today was published on 20 July 2021 in the online newsletter of Mazars (a financial advisory group).
The article was a response to the decision of the north of England family-owned supermarket chain, Morrisons, to put itself up for sale.
SHARKS
Morrisons is Britain’s fourth-biggest grocer. It is also a large farm owner and further, it operates a big food-processing business and a logistics business. So it is vertically integrated to a significant degree which makes it the owner of lots of supply chain businesses and real estate as well as those singing cash tills and pay waves at the checkouts. Its shares are listed on the LSE.
But covid has taken its toll – lockdowns, stay at home rules, opening restrictions, social distancing and so on (and don’t mention Brexit!). Morrison shares are currently reckoned by many to be undervalued, the covid effect and all of that, a broken British retail high street and again not to mention Brexit.
Enter the sharks, circling since (paywall) June. Americans of one sort or another, funds, cash rich and capable of enormous gearing – and hungry and smelling blood (and money) in pursuit of their fiduciary responsibilities. A Morrisons share price languishing well south of 200p for most of the year has in a few weeks gone happily and comfortably north of 260p as the sharks thrash out the future of what is just a share but also a gigantic business and force in British society.
But why should a shark-fest over ownership of a British supermarket chain bother us? Or should it? If the chain is taken over by one American shark or another and then likely ripped to pieces should we care? After all isn’t that just business – for-profit chasing and cornering of quarry (including consumers)? That’s life – and death and death is part of life and life the precursor to death (and please do dodge the jaws, they make for a bloody mess and messy clean-up).
This is a very old dispute in economics, business, investment and monied circles as to the point and purpose of it all. There is the shark perspective: it is all about money (and making it). Then there is the other – that business and its conduct must be socially responsible, engaged, as must also be investors, financiers and bankers and directors on their boards; what is today known as Environmental, Social and Governance Responsibility (ESG). We’re all (social) penguins not (hunting) sharks. Here in that vein is (reported in The Guardian) L&G’s cuddly and patriotic and socially responsible fund spokesperson on Morrisons:
“As responsible stewards of our clients capital, it is important that the company isn’t taken over for the wrong reasons … If an acquirer makes strong returns this should come from making the company a better business. It should not come from buying its property portfolio too cheaply, levering the company up with debt, and potentially reducing the tax paid to the exchequer.”
Just over half a century ago Milton Friedman, in a 1970 article in the NYT Magazine, said more or less this (if not so bluntly): business is a shark-fest and the idea of sharks confronted with quarry being socially responsible (or these days environmentally responsible as well) is to live in a dreamworld. Then the term was corporate social responsibility (CSR) – a fantasy in the Friedman framework.
Equally the roles of management and company directors, ‘governance’ as it is nowadays called. The director’s role (and that of the board collectively and of top management) is to act exclusively in the interest of the owners (shareholders), who are generally a blood-thirsty and flesh-eating lot. Ignore the waffle and get to the flesh and blood and understand that that’s life (and death). Bugger social (or any) responsibility and discover your inner shark and hope the great white doesn’t get you first.
Except that Friedman is a wee bit more clever and interesting than to be so crude. Here is a key paragraph from the NYT Magazine piece:
“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for example, a hospital or a school. The manager of such a corporation will not have money profit as his objectives but the rendering of certain services.”
This is a world of incorporatedness (not simply the sole trader craftsman/lone entrepreneur of Adam Smith). It is also a ‘free enterprise, private property system’. It is one of individualised ‘exchange-based’ ownership rights, the market, contracts and money, not a communal and customary-based world of ‘property’ (as in ‘for-use’ and based on tradition and reciprocity). It is ‘enclosed’, not ‘open field’.
Further, what Friedman also does is assert that his model world in its pure form, which for him is best, is also the best socially though society also if it wishes can through politics and the law, pen the sharks – and also provide for and enshrine what he terms the eleemosynary purpose of a corporate entity: the use of the corporate vehicle for charitable or other (e.g. sporting) not-for-profit purposes, a very dense social/institutional landscape in New Zealand (think Wellington Free Ambulance, St John’s, the Sallies, the SVP etc). That is all for society and not the business of business and well short of (anathema) full-blown direct state provision (the Welfare State).
In other words, people, society and politics do have the power to say ‘we can and will do this’, to make things happen, what philosophers term ‘agency’. Except that Friedman’s model of doing is confined, intentionally confining and in effect denies the power of agency to companies, their directors and managements. They are but agents (a different thing) answerable only to their principals (who do have agency). It also denies the many inequalites including of power, that characterise the world in fact. And it ignores an everywhere phenomenon of commerce and markets, failures and externalities (the macro dimensions to a world that is allegedly simply micro, atomistic and left alone, is perfect).
But it is a conceit
With his clever conceit Friedman dodges for his business audiences the big bullets of the politics of modern business in the real and global world of politics and states, as it impacts the lives of citizens as consumers and the general crises in society: it amounts to ‘nowt to do with me mate, that’s your job to sort (but we’ll have a hand in that too))’. That’s a cheat, a slight of hand – and unreal.
The French once (in the 1980s) had a dull as dishwater conservative PM Edouard Balladur, but he was bright. He once observed (in a 1993 interview with the FT), “What is the market? It is the law of the jungle, the law of nature. And what is civilisation? It is the struggle against nature.”
There are many versions of corporate (and everyday) capitalism, including Larry Vaughan’s beach-side on Amity Island. There is the ultra-green clean, cool Scandi flatpack look. There is Germany’s methodical and technological ‘Vorsprung’ model. There is what they have in China today. And there is the hard working small business local capitalism, family-based that prevails everywhere, what Germans term their mittelstand.
Most of these non-shark versions and ways of doing business and life do have to whatever degree elements of CSR or indeed ESG, simply by their moral and community integrity and decency and obedience to rules.
Today again as was the case over half a century ago (and has always been), big business (and its desired business alone decides the business (and political) agenda) is in confrontation with another set of prescripts for corporate governance. This is socially, politically and environmentally based but now with locked-in international governmental and UN support (the Paris Accord and related initiatives like COP). Most business is now having to swallow its instinct; it cannot be seen to be ‘against nature’. Greta threatens.
As you surf the Friedman wave seeking your inner shark return just hope the real bugger doesn’t bite your leg off.
[Here is a link to the last article Feargus wrote for Labour Affairs:
Labour Affairs 