Cover of MoneyWeek magazine issue no 595

Shopping for bargains

29 June 2012 / Issue 595

Our experts’ top European share tips

PLUS:

  • A precious metal miner to buy now
  • How to profit from a falling oil price
  • Why bank bosses are worse than bank robbers

Excerpt

The world’s dumbest idea

The big men of the corporate West aren’t listening. Politicians have told them they have to cut back on their take of the world’s profits. Academics and journalists have told them. For the last couple of years their shareholders have been telling them too.

Yet their take still isn’t falling. This week the FT announced that top US and European bankers have just seen pay rises of 12%. “High pay persists despite poor performance,” said the paper. Overly high pay expectations aren’t just about banks – those in doubt need only look at the saga of Xstrata. How, you might wonder, can this be, given that no one (except the CEOs) likes it? The answer comes down to limited liability and the 1980s.

The idea that you could start a business but limit your losses was frowned upon well into the 19th century: so much so that if you wanted to start a UK limited liability company you needed a royal charter. Why? Because people worried that if non-owners ran businesses they would take too much risk and that if investors’ liability was limited, they would fail to supervise managers properly.

• Read the full editor’s letter here: The world’s dumbest idea.