The main thrust of Mr Smithers' book is that modern management incentive schemes discourage bosses from making the investments the businesses they run need to maintain long-term profitable growth. His analysis runs to 360 pages - not especially meaty by the standards of business books, but even so, the gist of what he says could be summed up in a mere 97 words that Alistair wrote for his final No Free Lunch column before hanging up his IC boots last Christmas. To save you looking them up here they are:
"This column has castigated hundreds of managers for failing in their reasonable responsibilities to shareholders. For instance to keep them informed and not mislead them; to approach M&A activity cautiously, to invest where necessary to maintain a company's earning capacity, to invest judiciously to grow that capacity and above all to show some restraint in the executive pay race…Managers who weigh their own interests far ahead of shareholders' interests will naturally be blind to these responsibilities and will usually reap net personal benefits from this blindness, especially if they don't expect to be around for too long."
To be fair, few managers will deliberately mislead their investors, although not necessarily out of any code of shareholder responsibility – more because it is a criminal offence that some bosses have been imprisoned for. Most do a reasonable job of keeping shareholders informed, in as far as the shortcoming of corporate reporting standards and commercial sensitivities allow them to. And many approach M&A responsibly, too - bolt-ons have become the plat du jour on most boardroom menus, rather than indigestible megadeals.
However, how management deliver against the third and fourth pillars of the "reasonable responsibilities" Alistair talks about - judicious investment and restraint on pay - warrant closer scrutiny, because this is exactly where Mr Smithers believes the greatest threat to what Alistair called the "long-term commonwealth" lies, and they are closely related. In short, he argues that, with their remuneration and bonuses linked to share price performance, management won't to do anything to risk any short-term price weakness, even if that means cutting investment, which would otherwise increase productivity to the longer-term benefit of shareholders and, of more concern to Mr Smithers, the wider economy.
To mark National Ethical Investment week, this week's cover feature explores some of the moral dilemmas investors face when choosing what shares to buy. What we have not addressed is the ethics of management, and their attitudes to creating long-term value for their shareholders rather than short-term wealth for themselves. We will do so soon, though - as Mr Smithers and Mr Blair have long argued, it is an issue too dangerous to ignore.
