Let’s back small investors
LABour’s ideas on employee ownership are misguided in the extreme but the party has hit on a weak spot in the uK economy – the failure of shareholder democracy.
one of the great hopes of the thatcher years was that the privatisation of utility companies would create a nation of ‘sids’ – ordinary people with a personal stake in key industries such as water, gas and telecoms.
that, along with wider home-ownership through the sale of council houses and liberalising the mortgage market, was one of her biggest ideas for transforming society.
unfortunately, it has not turned out as she would have hoped. Direct share ownership by individuals has fallen dramatically, from 54pc of the market in 1963 to 28pc early in the thatcher years, to a mere 12pc today.
A number of utility companies, rather than being beacons of private share-ownership, have fallen into overseas hands. in some cases they were taken over by overseas government-controlled companies.
As for the building societies that floated on the stock market, creating thousands of new investors through their free share giveaways, none are left. they all, from HBos to Northern rock, Bradford & Bingley and Alliance & Leicester, fell victim to the credit crisis of a decade ago.
the proposal from Labour is to seize ten per cent of companies’ capital. ostensibly, this is for the benefit of workers but in reality it is a stealth tax.
Yet the underlying idea that ordinary small shareholders could be a potent force for good in the economy is correct, and it is one the conservatives should heed.
individual private investors are, collectively, a sleeping giant, as yet unaware of their own powers. these are real. When owners get involved in a business, it tends to do better: there is plenty of evidence that companies with a high level of employee ownership have better productivity.
SMALL shareholders can also fulfil other useful functions, such as defending a company against an unwanted bid, as Marks & spencer discovered to its benefit when sir Philip Green came knocking with a takeover proposal in 2004.
the row over unilever’s plans to move its headquarters from London to rotterdam is a prime example. one of the hurdles unilever needs to jump is for a majority of shareholders to approve its proposal. in theory, therefore, its tens of thousands of private investors have more sway over its future than the 8,500 big city institutions.
Private investors, once engaged, might actually be more challenging towards poor performance and bad boardroom behaviour than the big city institutions, which are often unwilling to rock the boat. of course, some companies are not particularly keen to enfranchise small shareholders, fearing they will be troublesome.
this shouldn’t be an option. Whether directly, or indirectly as pension or isA savers, it is ultimately us who are the owners of uK plc, not city institutions - the latter are merely the stewards of our cash and should act in our interest.
But the case of unilever highlights how the current system threatens to disenfranchise small investors. those who hold shares through platforms, in isAs or self invested pension plans are likely to find it expensive and difficult, if not impossible to use their full voting rights at unilever.
this is absurd. New technology should make it relatively cheap and easy for brokers and financial advisers, along with companies themselves, to make sure individual investors enjoy their full democratic rights.
Never mind corbyn and his madcap plans for a tax raid masquerading as employee share ownership. small investor power could be a major asset to corporate Britain – but only if we have a real shareholder democracy.