Why have so many UK companies been badly managed for so long?

A long-run perspective confirms that the generally low quality of UK management helps to explain the poor performance of companies and the wider economy. Improvement could come from better dissemination of modern management practices, alongside high-quality training and development programmes.

Efforts to analyse the economic performance of the UK relative to other countries have raised questions about the role of management practices, good and bad.

Early in the 20^th century, the economist Alfred Marshall bemoaned the performance of British companies compared with those in Germany and the United States. He blamed this on the amateurish nature of the country’s managers (Marshall, 1919).

By the 1960s and 1970s, trends in the country’s productivity and economic growth were unfavourably compared with industrial nations including France, Germany, Japan and the United States.

One newspaper headline from 1964 neatly encapsulates these views: ‘Is Britain a half-time country getting half-pay for half-work under half-hearted management?’ (Tomlinson, 2002).

The comparisons between the UK and its peers were widely used to paint a picture of economic stagnation and decline.

Across the 20^th century, academics, policy-makers and practitioners have debated the symptoms, outcomes and causes of what became known as the British disease (Allen, 1979).

The symptoms include a lack of specialist management education and training, which has led to the widespread use of outdated work practices and processes.

The outcomes include inefficiency and low levels of innovation, leading to low productivity within companies. This is then aggregated at the industry level and within the national economy.

The causes are manifold, ranging from government policies around competition and labour to culture, forms of company ownership and attitudes towards money, class and employment in the UK.

In the first quarter of the 21^st century, nothing appears to have changed. Recent research identifies management quality in the UK as comparatively low and a plausible cause of low productivity (Bloom and Van Reenen, 2007; 2010; and Haldane, 2017).

How valid are these criticisms? And what can be done to remedy them? A historical perspective provides important insights when considering these questions.

Education and training

The accusations of amateurism stem from major differences in the education and training of managers.

By the late 19^th century, managers with formal education – particularly university degrees in technical and scientific disciplines – became increasingly widespread in France, Germany, Japan and the United States (Cassis, 1997; Keeble, 1992).

Universities, often with the support of business and government, developed degrees to support industrialisation in these countries. Further, early in the 20^th century, specialist management education emerged, particularly in the United States. Its aim was to equip managers for the effective running of increasingly large companies.

Other forms of management training proliferated, such as the Meister certification in Germany. This focused on improving the skills of first-line managers (the lowest level of supervisors overseeing workers) in technical skills and personnel management (Paulson, 2023). Broadly speaking, these have been seen as efforts to professionalise management, specifically in the acquisition of specific knowledge and skills.

Figure 1: Proportion of corporate leaders of largest companies with a university education, France, Germany and the UK

Source: Adapted from Cassis, 1997, Big Business, p.132.

The UK has lagged behind, with lower numbers of university educated top and middle managers, as Figure 1 shows (Cassis, 1997; Broadberry, 1997). A recent study shows that it took until the 1980s for a majority of chief executive officers (CEOs) in the UK’s 100 largest companies to have a university degree (Adams et al, 2024).

Figure 2: Type of degree held by UK corporate leaders

Source: Adams et al, 2024.

Notes: ‘Higher education’ refers to the proportion of CEOs from the UK’s top 100 companies with a higher education qualification; management includes proximate disciplines such as economics and finance.

Much criticism has been made of the UK education system and its lack of specialist preparation for a business career (Sanderson, 1972). There were no institutions specialising in management education until 1945 when the Administrative Staff College at Henley was founded (Tiratsoo, 1988).

Further, it was not until the 1990s that business proximate and technically specialist disciplines predominated (see Figure 2). At the same time, efforts to train first-line managers have been haphazard (Paulson, 2023).

In place of formal education, UK companies tended to prefer learning on the job and practical experience. They have been more likely than their international competitors to employ managers with qualifications from chartered professions, such as engineering and accountancy. This may have substituted for formal education through a mix of theory-based exams and practice-based training (Cassis, 1997).

Company ownership and government policy

While the UK’s supply of educated and trained managers lagged its rivals, it is interesting to ask why was there not greater demand?

One of the key arguments relates to the predominance of family and owner-manager owned companies in the UK in the first half of the century. This saw leadership and management roles dominated by family members rather than salaried professional managers.

It is claimed that family members tended to be more interested in extracting profits rather than investing in growth and innovation or adopting modern organisational structures and management practices (Elbaum and Lazonick, 1984; Chandler, 1990).

This led to a widespread lack of interest in and distrust of high-quality management, with managers perceived as an unnecessary cost. The result was the employment of small management teams and a relatively low number of managers throughout the economy (Keeble, 1992).

A protectionist approach to industrial policy from the 1930s to the 1970s also influenced the relative insignificance of high-quality management (Crafts, 2012). Intensification of foreign competition and government responses to both the First and Second World Wars saw restrictive industrial practices, such as cartelisation and barriers to foreign entry, become widespread.

Protectionism lowered incentives for efficiency and innovation, which reduced the need to develop strong managerial cadres to undertake these activities. A lack of creative destruction and the prevalence of family ownership retarded efforts to professionalise UK management.

Institutions and culture

More deep-rooted factors have been proposed as causes of the lack of interest in management in the UK. Why, despite being exposed to and in some cases offered access to best management practices after the Second World War, did British companies and corporate leaders stubbornly refuse to adapt? (Tiratsoo and Tomlinson, 1997).

Perhaps the most controversial explanations are cultural: one prominent example claims that the British disease is a function of anti-commercial attitudes derived from the landed gentry (Weiner, 1981). Striving for money and professionalism was not compatible with a gentlemanly lifestyle. The domination of the economy by the upper classes meant that these attitudes were ingrained (Giddens and Stanworth, 1974).

In part, the refusal to adopt modern management practices has been linked to Britain’s successes in the first industrial revolution and its economic primacy in the 19^th century. This created ‘path dependencies’ around processes and mindsets towards business.

A form of practical individualism was strongly associated with the innovations and market expansion that drove industrialisation. These attitudes formed the distrust of managers and persistence with outdated practices.

Does the British disease persist today – and if so, why?

Across much of the 20^th century, there was a significant lag between the UK and its industrial rivals in terms of specialist education and training.

Convergence in levels of formal education did not occur until the 1990s (Adams et al, 2024). This was driven by the pro-market reforms of the Thatcher government and globalisation – both of which encouraged competition and pressure to adopt best practices – alongside lagged effects of education reforms in the 1960s that significantly increased the number of university places.

Top and middle managers, particularly in the largest UK companies, now tend to be as educated and trained as their global peers. Nevertheless, differences persist in the quality of management, with lower performance often found in smaller companies with less exposure to international markets (Bloom and Van Reenen, 2007).

There has also been no coherent effort to raise the quality of first-line management. Indeed, the expansion of higher education through the 1990s and 2000s meant that vocational and technical training has remained a marginal pathway for school leavers .

Why do these differences persist?

Company ownership is unlikely to be a factor. Research shows that company ownership in the UK was diffuse and not dominated by families much earlier than previously thought (Hannah and Foreman-Peck, 2012).

Industrial policy, while an important factor earlier in the century, has converged. The UK is now a strong promoter of global and domestic competition.

This leaves cultural arguments as possible explanations. The impact of aristocratic anti-commercial values may persist, but these social groups declined in importance in business early in the 20^th century (Adams et al, 2024). Further, the pro-market reforms of the Thatcher era were explicitly designed to encourage an enterprise culture.

Yet, the lack of interest in first-line managerial training and practice, particularly among smaller companies, does suggest a plausible set of wider cultural determinants. The long-run path-dependent belief in the UK’s economic success has potentially clouded belief in the need for improved skills.

Long-run analysis of the country’s approach to management suggests that there are two interlinked areas of focus for curing the British disease. First, there needs to be improved dissemination of best practices in the development and use of high-quality management throughout the economy. Second, the country requires a stronger focus on developing high-quality first-line management through specific training and development programmes.