LSE’s misguided money mission To attract the best to the City takes more than just bucketloads of moola
arlier this year the relatively new CEO of the London Stock Exchange (LSE), Julia Hoggett, said “City” players would have to be “young, scrappy and hungry” if they wanted to attract more companies to list on the exchange.
Like South Africa’s own stock exchange, London’s has been on the wane for some time. It’s not only failing to attract new listings, it could be about to lose a few big ones.
And what an indignity. Last November Paris overtook London to become Europe’s (the geographic not political entity) biggest stock market in terms of combined market capitalisation.
In January Hoggett said she was concerned that some in the City had become complacent. “There seemed to be a debate about whether there was even a need for change,” Hoggett told the Financial Times. “We’ve got to have a market that attracts as many
Ecompanies as possible from the UK and overseas.” Being “young, scrappy and hungry” was the way to go. Four months later and the solution was a little more straightforward. Corporate executives have to be paid more. Not just a little more, stonking great amounts more. If they’re not paid huge sums then UK companies will not be able to compete for talent on a global basis, said Hoggett.
And without this talent, you know what happens? Yes, the UK economy will just slide into obscurity. Of course, if they are paid unlimited amounts then the UK economy will boom, and it will be back to the glory days for the LSE. Or so Hoggett seemed to suggest.
There are no details on what the global market for executives looks like, but it’s inevitable Hoggett sees one dominated by US characteristics.
Certainly, despite the remarkable success of the Chinese stock market and economy, there’s no sign she’s including the Xi Jinping approach to this market. That approach is essentially that if executives are getting too rich they probably need a spell in jail, or somewhere quiet.
Though she should be commended for taking an unpopular stance on the issue, its robustness is tone-deaf given that most UK workers have endured real pay freezes for several years and are under severe cost of living pressure. “Chief executive pay is booming but working people are enduring the longest wage squeeze in 200 years,” was trade union leader Paul Nowak’s response.
But is there even a global market for executive talent? If there is, is remuneration the only factor that determines supply? And if so, why hasn’t all the executive talent in the world moved to the US and left the rest of the globe struggling to make do with second- and third-rate executive talent? Are we in fact dealing with that situation now?
Unfortunately, apart from special pleading by CEOs and the remuneration-industrial complex, there is little evidence to prove one way or another what the major determinant of executive talent supply really is.
Certainly “all other things being equal”, one assumes an executive would prefer to get more rather than less money. This is particularly so given that everything around them encourages greed and measurement against someone being paid a little better. But putting remuneration front and centre, as Hoggett seems to do, not only trivialises human motivation but also the functioning of complex corporate entities.
And it’s not as though there aren’t some UK-listed companies already paying top dollar. One of them is building materials maker CRH, whose CEO Albert Manifold was paid €14m in 2021. In March the company announced plans to move its primary listing from London to the US. UK-based semiconductor chip designer Arm has also said it will list in the US, no doubt adding to Hoggett’s panic.
Perhaps Manifold is looking for even more money. Perhaps, but more likely, and what shareholders are hoping, is that the much more liquid markets in the US will propel CRH to a higher rating. News of the planned move lifted the share price almost 10%.
Remarkably, the LSE’s CEO makes no mention of London’s lack of liquidity as part of the reason for the exchange’s lacklustre performance.
Over the past 30 years the UK authorities have introduced regulations forcing fund managers to switch out of equities to supposedly safer bonds. The result is that only 19% of assets in defined benefit schemes are invested in equities, compared with 61% in 2006, which is why so few UK pension funds even feature on shareholder registers of UK companies.
It’s a bit worrying that Hoggett presents executive remuneration as the simplistic solution to a complex problem. The LSE is indeed in trouble.