I am speaking today at a meeting in Parliament of the All Party Parliamentary Group on Corporate Responsibility. The subject is the duties of directors of companies under UK Company Law. It is an opportunity to put right those in business who mistakenly say that they are obliged by the law to put shareholders first. Actually the job of a director is to put the company first. Shareholders are a mixed bunch and directors are never going to please them all.
What’s more many of the fund managers that companies listen to are not the real shareholders: they are or should be stewards on behalf of ordinary savers and pension members. Maximising the company’s short term profitability while cutting investment in people and R&D is rarely helping the long term performance that will pay future pensions. Future pensioners also want to retire into a world where they and their children can breathe the air and be protected from out-of-control carbon emissions.
Company law is not the only instrument available to Government. It can change the incentives to shift the balance away from the casino economy now promoted by listed stock exchanges and favour long term investment. It could create investment mutuals through which retail investors could collectively make their voices heard by the listed companies whose shares they own.
Government is also a huge customer. The public sector spends over £250bn a year on the private sector. Government can now use the new BS 95009
to select companies which are well led and reject those which are in it for a quick buck.
Any government that wants to be elected must address the shortcomings and short termism of our capitalism. Not by promising more state ownership. But by creating the conditions in which long term stewardship of well led companies can offer value for staff, shareholders and society.