MINISTERS AS DIRECTORS.
[TO THE EDITOR OF THE "SPECTATOR."]
SIR,—Your editorial note in the Spectator of April 11th urging that the tenure of directorships by Ministers is a matter for regulation rather than for blind condemna- tion will commend itself to every practical man who seeks greater efficiency in public affairs. There is nothing conducive to administrative capacity in the career of the mere party politician ; the results have been witnessed in Ministry after Ministry for generations, and have undoubtedly -reacted with great discouragement upon the Departments which the Front Benches alternately control. The successful and experienced men of business who enter Parliament always render valuable service in office if they get there—Mr. W. H. Smith, Lord Goschen, Sir H. Fowler, and pre-eminently Mr. Chamberlain, are cases in point—but it is only exceptionally that such men combine with their practical capacities the special gifts requisite for Parliamentary success. The keen and able politicians out of whom Cabinet Ministers are evolved may get a glimpse of administrative methods in the manage- ment of a well-organised and closely contested election, but I believe agents would tell us that only a small proportion of Members of Parliament have any grasp of what is involved in the organisation of their own constituen- cies. Again, a young politician may undoubtedly acquire in the Committee rooms some acquaintance with the broad practical conceptions which become instincts in business management. But such casual opportunities afford a very inadequate experience for a man, however able, who is called upon to assume responsibility for the policy and the efficiency, possibly the reorganisation, of a great Department of State. So far from approaching the tenure of directorships by Ministers in any apologetic or deprecatory attitude, I submit that a seat on the board of a well-managed company, especi- ally companies which are large employers, should be counted as a positive and valued qualification for political office,—a partial substitute for the good fortune which at rare intervals places at the disposal of the State the experience acquired in large private firms. There is doubtless an immense difference in boards, as in the duties discharged by directors, but every step taken to eliminate the amateur or negligent director, and to fix each member of a board with his personal responsi- bility, will increase the value to the public of such experience. Who can fail to trace in Lord Selborne's official actions how much the State has gained by a system which has enabled the • Nowa Vremya, January and, 1903.
First Lord of the Admiralty to serve an apprenticeship upon the Board of the Peninsular and Oriental Steamship Company ? I venture to urge, therefore, that M.P. directors (provided they are taking a responsible interest in their duties) supply a most valuable element in our Parliamentary system,—an element which, as you suggest, may need regulation, but which no wise man will discourage.
If that be recognised, there remains the question,—. Ought Members of Parliament to hold directorships when they accept office ? There is no ethical question involved. The advantage to the State is the sole consideration with which the public is concerned. Is it desirable to exclude from the Ministry all but those who are able to cut themselves loose from their outside interests for the temporary emolu- ments of political office ? That would limit the choice of
Ministers to rich men and office-hunters who had no position to sacrifice. The loss to the State could only be palliated by a system of half-pay for Ministers while in Opposition. At present, however, nobody proposes that men like Mr. W. H. Smith or Mr. W. E. Forster should divest themselves of their private businesses or dissolve their partnerships before taking office, or that a great managing landlord should part with the control of his estate. A director often holds a large stake in his company, and it is impossible to set up any rational dis- tinction based upon the mere fact that A shares with his partners the management of his affairs under the law of partnership, while B shares the management of his affairs with his co-directors under the Joint Stock Acts. Still, as you have pointed out, there are limitations which need to be recognised; and, in fact, an unwritten code has already grown up. The following dogmas seem to be established; perhaps others may be added :- (1) No Minister whilst holding office joins a board de novo.
(2) No Minister accepting office remains on the board of a company in which he is not substantially interested.
(3) No Minister remains on the board of a company if there is any possibility of a conflict of interests between his De- partment and the company. Thus a First Lord cannot be a director of a shipping company ; a Secretary for War cannot be connected with Armstrongs or Vickers, Sons, and Maxim ; a Chancellor of the Exchequer cannot be a director of the Bank of England.
(4) A Minister who has retained a directorship must resign his political office if any discredit falls upon his company.
Whether it is for the advantage of the company to retain the
services of a much preoccupied Minister is not a point for the public to meddle with. Shareholders alone can decide whether they value the occasional services of an experienced and able director too highly to part with him. Yet I venture to sug- gest that the public and all parties concerned would gain if it were the recognised practice that a Minister who retains his directorship should nominate an "alternate" to repre- sent him at the board. Such an arrangement is feasible
under the articles of many modern companies, but not in older companies ; and it would simplify matters if a clause applicable to all companies could be enacted pro- viding that, unless specifically disallowed by a resolution of the shareholders, the director of a company who accepts temporary employment of any kind in the public service may nominate an " alternate " to represent him during his term of office, such nomination to require the approval of a majority of the board, and to be submitted for confirmation by the shareholders at the next general meeting. Such a clause would not only solve the position of Ministers, but also possess a far wider utility. Good directors are constantly being requisitioned for the public service, while the recent war showed how a national emergency thinned the ranks of many boards to a most inconvenient extent. No 'one, how- ever, could wish to refuse leave of absence to directors in these circumstances, or to part definitely with valued colleagues because their services are temporarily needed by their country, and a general statutory power permitting the appointment of " alternates " in such contingencies would establish a useful principle and, I believe, meet every point.—I am, Sir, &c.,
[We publish with great pleasure Mr. Grell's very able letter. With its general tone and temper we are in entire agreement: His suggestion as to the power to nominate an "alternate strikes us as most sound and useful. It is a suggestion eminently practical, and would get over the difficulties about which we have always felt so strongly in this matter. We want to see business men in the Cabinet, but we also want to see the Cabinet entirely free from what we may call the board-of- directors atmosphere. For fear of being misunderstood, we must say for the hundredth time that we are not in the least afraid of Cabinet Ministers furthering their private pecuniary interests owing to their being also directors, and have not the very slightest objection to holders of great amounts of stock in public companies being in a Government. What is objec- tionable is the double fiduciary capacity. A director ought to think of the interests of his shareholders. He may sacrifice his own pecuniary interests on some public question. He has no right to sacrifice theirs. Therefore the Cabinet Minister while be is in the Cabinet should not be a director. We hope Mr. Gell's suggestion may be adopted.—En. Spectator.]
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