Tuesday 20 May 2003

A victory for capitalism

The shareholders of GlaxoSmithKline voted 50.72% to 49.28% against the proposed remuneration package of its Chief Executive. Jean-Pierre Garnier could have received up to £22 million were he to be removed from office. This is a famous victory for capitalism. Contrary to what the Glasgow Herald may think, the company did not suffer "a humiliating defeat at its annual general meeting." We need to understand some basic principles of company law.

A company is a legal entity in its own right. It can sue and it can be sued. It is a separate entity from both its shareholders and its directors. Nevertheless, the shareholders ultimately control the company through their votes at general meetings. Directors are appointed to manage the company for the benefit of the shareholders who can replace the directors if that is seen to be necessary. Last night's vote was not therefore a "humiliating defeat" for the company but for the board of directors. The capitalists have exerted their control over the company's agents and employees, the directors.

That is how it should be.