Two weeks ago I commented that, in the UK at least, the lack of trust in business had eroded the voice and perceived legitimacy of business organisations. And I made the obvious comment that we need business and business leaders who connect better, match deeds with words and show by their actions that business is a force for good.
In this blog I had planned to discuss shared hazard and shared reward and the peoples’ voice in stewardship.
I am in unexpectedly good company. In her Birmingham speech, Theresa May talked about the right of everyone in society to take ownership of what matters to them. And her campaign slogan was
‘A country that works for everyone; not just the privileged few’.
The new PM has echoed the concerns of many who have sensed the hostility people feel towards globalisation and the world of big business and big investment.
The statistics speak for themselves. The gap between people at the top of companies and average pay has grown from a ratio of 47 in 1998 to 148 in 2014[i].
Here’s the paradox and the nub of the issue.
Those same large companies that attract such hostility are today part-owned by many of the people who feel disconnected from them. Teachers, local authority workers, university lecturers, railway employees, plus everyone who has life insurance are part owners of the companies they feel so distant from.
They feel disconnected from the actions of those companies…
When they see them pursuing shareholder value, they don’t see it in terms of their pensions. They don’t see shared reward. They see a great divide between people at the top of companies and their own lives.
So how can we change this?
We need a new agenda, a stewardship manifesto, by which we reconnect the ordinary citizen saver with the capitalism they part own. Although their ownership stake has shrunk as ownership of companies on the stock exchange has become more international, it remains significant and it could be delayed in a far more direct way.
Tomorrow’s Company originally produced such a manifesto in 2010. It sets out the changes each of us could make, acting in concert. That’s individual savers and investors, pension trustees, their advisors, asset managers, companies and their boards, and governments who make the rules.
Since that time the technology has moved on. It is, in principle, so much easier to survey the wishes and values and preferences of investors, and find them an investment fund that matches those values.
It isn’t currently in the immediate interests of the fund management industry to do this, but it is in their longer term interests because the disruptors will be moving in soon to this industry in the way that Philip Sadler, in his recent blog, has described them moving into areas like the music industry.
There are some other players not mentioned in the manifesto who could make a difference.
Our largest pension funds are there to look after the interests of their beneficiaries over the very long term. The BT pension fund is looking after the interests of, say an OpenReach telephone engineer who is now in her or his 30s, and who may not retire until at least her late 60s, some 30 years later.
That telephone engineer wants to live in an economy where there is a dynamic business sector, in which entrepreneurs are constantly starting new businesses; in which, a proportion of those businesses will grow, funded in part by bank finance; and in part by her or his pension. That modest citizen investor would be even happier if the businesses thus shared some of the benefit of their success with their staff through employee share ownership schemes. And happier still if they took a long-term view of their staffing needs, investing in effective apprenticeship schemes and creating win-win partnerships with schools, colleges and universities. And happier still if the fund managers resist opportunism and take a long-term view of the merits of a hostile takeover bid.
If progress is made in this area, ordinary people might then feel that the corporate sector is strong, thriving, working for them, thinking for the long term about the health of the society, the training and development of the next generation, and the physical infrastructure on which companies success depends.
It has always been important for the UK to design a system of investment and governance which properly favours a focus on people, relationships, integrity and the long term. Now is the time for businesses based in the UK or heavily present here to come together and present their own revised version of the stewardship manifesto.
At a moment when the country is divided on so many issues, here is one on which we could unite people – a more progressive form of capitalism, underpinned by the principles of good stewardship:
- businesses worth believing in;
- an investment system in which savers can achieve a better long-term return while choosing to back such businesses with a slice of their savings without so many benefits being siphoned off into fees for investment banks and opportunistic takeovers
- investment institutions that know how to identify and support well-led companies while holding the board and CEOs to account
- And a system in which, as one investor put it to me last week, we invest in companies, not stocks.
For years that has seemed low on the list of government priorities. Let’s hope that is about to change.
[i] High Pay Centre, “The State of Pay: High Pay Centre briefing on executive pay”.
This post originally appeared here.