Sir James attracted plenty of attention with his takeover bids for companies, but for him, corporate raids were the engine of capitalism. As he told the Senate Finance Committee, it was a necessary corrective.
“Raiders shouldn’t put on a halo. They are doing it for personal gain. The important thing is whether their action is generally beneficial or generally detrimental, not why they are doing it … the dead hand of the bureaucrat does not produce growth. It does not produce innovation. It produces complacency, ossification and decline.”
Early in his career Sir James learned the lesson that centralised power is inefficient and dangerous: his plans for the reorganisation of Cavenham involved centralising control of the business units, and nearly brought the company down. He only found success by returning power to talented and incentivised managers.
Take it from the top: The Business of Business Success
A discussion with David Frost, explaining his ideas of business management and success
In the 1980s Sir James applied this lesson to his fight against large corporations and conglomerates he believed should be broken up. In his view, authority should be decentralised, and each part of the business should be allowed to run itself. Companies that had diversified away from their core purpose should be returned to their core business strengths, and anything peripheral sold off, with the proceeds being used to strengthen the central company.
Opinions: Britain 1993
A speech outlining his beliefs on economics, ecology and society
Many of his thoughts were presented to the US Senate Finance Committee during his battle to take over Crown Zellerbach in the takeover boom of the 1980s. The definition of a hostile takeover was at the heart of the argument beginning to divide corporate America. Sir James did not believe large corporates should be protected from such takeovers – nor that takeovers were ‘hostile’.
“Who would have believed a few years ago that conglomerates, created at the time by freewheeling entrepreneurs, today are described by some as sacrosanct institutions which would be protected by the marketplace by special legislation? All that has changed in many of those companies is that the flame of the founder has been replaced by the complacency of the bureaucrat.”
“In breaking up an old conglomerate, you’re not killing companies, you’re not buying them to shut them down and sell their assets. You are simply killing off the bureaucracy and letting the companies inside the conglomerate free.” – The Thoughts of Sir James Goldsmith, 05/87
Despite being tainted with the stigma of other financiers conducting what began to be called ‘takeover raids’, Sir James was never a pure asset stripper. There was always an industrial logic behind his takeovers, closures or asset sales. Many of the companies he challenged and lost, notably Goodyear, RHM and BAT, later ‘unbundled’ themselves in precisely the manner he proposed – with considerable benefit to their shareholders. And his own unbundling, including Cavenham and Crown Zellerbach, created an array of healthy companies, which, with a few exceptions, are still around.
His views on good and bad takeovers, including his thoughts on ‘poison pills’, leverage, tax, legislation and the relationship between management and stakeholders were also outlined in a statement to the International Mergers and Acquisitions Conference in 1989.
“The marriage of management and capitalism is the greatest life-giving thing an economy could have”
Sir James believed takeover ‘attacks’ were necessary to keep management on their toes.
Conglomerates could be enshrined and allowed to ossify, leaving an inefficient industry forever – or the market could be left free to ‘cleanse’ itself. A proper defense to a takeover ‘attack’ would be to cut extra overheads, cut out unnecessary companies and close the obsolete factories or modernize them and make them more efficient. And if this attack was not allowed to take place, complacent management and protected conglomerates would only lead to more obsolete factories, more overheads, and companies becoming more uncompetitive ¬– and devalued.
Watch here to hear Sir James speak more about board responsibilities, and the necessity of a free market that allows takeovers and the ability to ‘cleanse’ itself.