Across the pond

with David Anderson

David Anderson is President of the Anderson Governance Group

Learning from experience

that resulted in less R&D investment also led to innovations in market deregulation and mortgage practices being viewed with suspicion, which was certainly beneficial. Thus the lions share of credit for Canadas success in getting its economic house in order goes to the government, which found courage in necessity to create conditions amenable to capitalist ambitions, which could then generate national wealth. The proof of efficacy for the governments fiscally-conservative, regulatory risk-averse and open markets approach was not only 13 years of surpluses, but a continually growing, stable economy. So, what can the UK do to address its current economic challenges? The Canadian experience suggests the following: The UK Government needs to act vigorously to restore market confidence in its economic judgement and willingness to act decisively. The only way to reduce debt is to run a surplus, which means more revenue than expense in the aggregate. A synchronised fiscal and monetary policy will demonstrate integrated economic stewardship. The regulatory framework needs to impose discipline on businesses and markets that can too easily get caught up pursuing selfinterested, short-term goals to the detriment of stakeholders. UK business leaders need to draw on the countrys illustrious business history to encourage a renewed focus on strategic, longterm investments in people, production and markets, both domestic and foreign. Here is a golden opportunity for the owners of British capital to sit down with directors their elected corporate governors and executives to align expectations of organisational purpose, priorities and performance. Arguably the impact of leadership can be greatest in the midst of uncertainty. Owners, directors and executives must raise their game in the exercise of corporate leadership to realise risk-calibrated strategic objectives. Leaders must innovate in the real business of business, and not let tighter regulation in capital controls distract them from making their unique and necessary contribution to British success.

The impact of leadership can be greatest in the midst of uncertainty.

n Canada in the early 1990s, two decades of deficit-spending had produced a massive accumulated debt approaching 60% of GDP with surpluses nowhere in sight. Interest payments devoured about a third of government revenues and with the country back in recession, there was little manoeuvring room. Remarkably, within a couple of years, Canada turned the tide, recording a budget surplus in 1995 and continuing in surplus, paying down debt, until the global economic crisis took hold. Even in the midst of that crisis, Canadian business remained relatively robust. Is there anything the UK can learn from the Canadian experience? To address this question, its important to understand decisions made in both government and business. Government decisions are reflected in fiscal, monetary and regulatory policy, while business decisions are evident in investment horizons, market choices, innovation and exchange listing requirements. In response to economic crisis in Canada, fiscal policy was to drastically cut expenditure
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and increase revenues. Monetary policy, managed by the independent Bank of Canada, had one objective: to control inflation. The government cut expenditure across the board and raised revenue through a national valueadded sales tax and growth-oriented policies, such as trade agreements that encouraged business leaders to act strategically. A floating exchange rate, which provided an economic adjustment mechanism, and sovereign control over both the fiscal and monetary policy, also acted in Canadas favour and can do now for the UK. Canadian business leaders also put the spotlight on corporate governance practices. The Dey Report, Where were the Directors?, prepared for the Toronto Stock Exchange in 1994, showed stirrings of a deeper respect for governance in Canada. Business leaders expanded production capacity to take advantage of new markets opened by free trade and a low-value dollar; exports to foreign markets soared. Much more could have been done to improve Canadian competitiveness but, perhaps paradoxically, the conservatism

About the author

David Anderson MBA PhD ICD.D is the President of the Anderson Governance Group based in Toronto. He can be reached at david.anderson@taggra.com and +1 (416) 815 1212.