Peter Truesdale says that ownership matters, and that shareholders need to be reconnected with the wealth-creating companies that they own.
Companies, governments and horsemeat
You can get a bit obsessed. Sometimes I wonder if I’m obsessed. Obsessed about the shareholder.
A surprising obsession perhaps but my point is this: over the past thirty years society seems to have become fixated by companies. Take the recent Shergar-burger scandal in the UK. Horse meat has got into the food chain masquerading as beef. Everyone is outraged. The British don’t eat horse. And when you buy a beef-burger you want it to be a beef-burger.
Blame the companies!
Those of us who are old enough will remember a time when the reaction would have been: “What’s the government doing about this? Don’t they know they have a job to regulate and protect public health?” That hasn’t been the default way of thinking for quite a few years now.
All this set me thinking: “If companies are now viewed as being so much more important, why do we hear so little about the owners, the shareholders?”
The Silent Stakeholder
In Victorian times the owners were the owners, so to speak. The Cadbury family were Cadbury’s. When it said Wills’ cigarettes it meant that the Wills family ran the show. Now more of us own shares directly or through trusts and investment vehicles. Yet the interest seems to be less.
We have anonymised ownership.
We have turned companies into the commercial equivalent of drones – organisations that follow a purposeful course but lack a human face.
Does it matter? I think it does.
Two bad consequences
Not giving centre-stage to the shareholder – shareholder duties, shareholder rights and shareholder responsibilities – weakens the case for responsible capitalism.
When shareholder votes on remuneration are advisory rather than binding, inevitably questions arise about who really is responsible. It’s a bit like the Queen allowing her servants to decide what goes on in Buckingham Palace! Or the equally unlikely scenario of the players deciding what goes on at Old Trafford. If shareholders can’t set senior management pay what does ‘ownership’ mean?
In some ways more serious than the side-lining of the shareholder is the weakening of any public belief in the importance of wealth-creation.
At the high noon of Thatcherism, and in its immediate aftermath, one could not turn on the television without someone extolling the wealth creators of Britain. That has subsided. It gets the odd nod in lifestyle articles telling us how Justin and Julian (or was it Hugo and Henry?) have set up a pie-making firm in Fulham that now employs 12 people. Otherwise it is pretty well off the news menu. This is bad. Enterprise and wealth creation are needed to generate sufficient economic growth to support the increasingly aged population with its high demand on health and social care services.
Yet if people were really connected to their equity portfolios they would recognise the benefits of wealth creation readily.
What is to be done?
So what should be done?
We can’t turn back the clock to Victorian Britain. What changes can be made to reconnect the shareholders and the firms they actually own?
Here are four proposals, three of them directly within the remit of the Corporate Responsibility function:
Make votes binding: End all non-binding votes at shareholder meetings, be they AGMs or EGMs. Nothing is more alienating than being told you are the owner but you can’t determine senior management pay. Ownership is illusory if it doesn’t give you the last word.
Report your contribution: Corporate Responsibility reporting often says much about economic benefits to a firm’s suppliers but nothing about economic benefits for the owners. Show where the economic benefits of shareholding accrue. A firm like BT is playing a big part in generating the income and capital growth of Britain’s pension funds. Work out how much and report it.
Reach out to the ultimate beneficiaries of your company: Companies tend to manage communication with major institutional shareholders effectively and direct individual investors adequately. Yet the indirect owners matter too. Certainly they have significant influence in forming attitudes towards business and wealth creation. Part of the communications strategy should target them.
Recognise the shareholder as a prime stakeholder: Some Corporate Responsibility reports read as if everybody mattered except the owners of the company. That must be changed. Companies should show not just how they have reached out to business partners, employees and communities but how they have taken account of their owners’ views too.
Such actions won’t solve the problem straight away. They are steps in the right direction. It’s time to act now.
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