Prudential CEO Tidjane Thiam has just learnt the hard way that he is accountable first and foremost to his shareholders. His climb down over the £24.6 billion proposed bid for AIA now looks set to cost his company £450 million and might yet cost him his job. We care partly because the Pru has for decades been the watchword of, well, prudence.
I’m not qualified to know whether Mr Thiam was more right than wrong in seeking to buy AIA. What I do know is that too many CEOs believe that they are laws unto themselves or that today all stakeholders are equals.
So the assertion by Pru shareholders of their power to stop the bid for AIA is a timely reminder of where the priorities and corporate lines of accountability lie. The deal’s collapse makes it clear to CEOs everywhere that they must listen to their shareholders more.
I’ve been predicting that in the future shareholders will, and need to, assert their power more and more. That’s because – contrary to popular mythology – one of the lessons from the last boom and today’s bust is that shareholder-value was not over-valued so much as marginalised in the pursuit of short-term interests. Real long-term shareholder value was denigrated by management teams which ran companies more or less for their own benefit whilst covering themselves in the rhetoric of wider stakeholder interests.
My bottom line (and the firms’)? Shareholders may be quite good custodians of long-term value after all. Perhaps even better ones than the “stakeholders” who bang on about sustainability.
I’m not saying that always applies or is even what’s applying in this case. I’m saying that it’s wrong to assume that modern shareholders always fit the short-termist stereotype that’s foisted on them.
What’s more, it may be that Mr Thiam has understood where the long term prospects of the Pru really lie (it may be that his spate with shareholders was mostly about the price of AIA rather than his strategy).
The challenge now is for the Pru to repair its broken relationship with its shareholders, particularly with Prudential Action Group, which planned to oppose the deal at a shareholder vote due to be held on 7 June.
Personally, I hope that the impressive Mr Thiam survives. I believe he should be given room to learn from this setback. But if the price is his head, so be it, because it will provide a much-needed reality check throughout the corporate and PR worlds.