You have heard about the green consumer increasingly influencing how companies behave – how about the citizen shareholder? The idea was debated at this week’s Tomorrow’s Company event to discuss stewardship – the idea that share ownership should be more than just about buying and selling but should involve proper ownership that encourages long term value growth. Long term is the key – too much emphasis on short termism is seen as the reason for many of the woes that have afflicted the financial markets and investments during the credit crunch.
Indeed the panel, which included two journalists – Matthew Bishop of The Economist and Lisa Buckingham of the Mail on Sunday - identified toxic ideas, not toxic assets, as the main problem, when such luminaries as Alan Greenspan with all his intellectual heft had failed to identify the flaws in the perfect/efficient market orthodoxy of the last 50 years. New orthodoxies are being sought and there is a great opportunity to redesign the system to ensure that unrestrained capitalism cannot create the shocks and disasters of recent years. Central to this is stewardship where responsible owners act to provide a framework and encourage a sustainable long-term approach and value growth for companies and other types of asset.
However given the fragmented ownership of companies how feasible is this? Shareholders may include a multiplicity of traders, hedge funds, arbitrageurs, activists and overseas investors with a short-term approach to share ownership as well as more conventional fund managers, pension schemes and retail investors. It would certainly not be wise or desirable let alone practicable to do away with short-term players in the market. Various suggestions have been made about incentivising a longer term approach, including providing some form of additional compensation for stewardship. Many asset managers have leapt on the bandwagon of responsible investing as being the next big idea to market to consumers. Inevitably some of this is lip service – like the greenwash that some companies produce.
More widely it is felt that the key engine of change will be the end-user – the beneficiary of longer term value creation: the retail shareholder, the pension scheme member or long-term saver. The dream of a shareholding democracy that was encouraged by the BT privatisation and the “Tell Sid” campaigns of the 1980s has failed to come to pass. In fact there are less retail shareholders in the UK now than ever before. But many of us are members of a pension scheme, and/or have holdings in unit trusts or other mutual funds. And the need to provide for our retirement is greater than ever as the average lifespan continues to increase year-on-year.
So we have a direct interest in how companies in which our fund(s) has invested, fare and perform over the long term.
But when ownership is at one remove people become disengaged. Even a campaign by the Mail on Sunday failed to convince pension scheme members and mutual fund investors that it was worth getting involved with companies despite widespread fury among readers about issues such as bankers’ bonuses, and the mismanagement by Boards of banks during the credit crunch.
How to encourage individuals to become more involved? A lot is down to education. The vast majority of us are ill-informed about financial matters and tend to take a very cynical view of financial services following on from the misselling scandals of the last 20 years and the credit crunch.
It was felt that fund managers need to play more of a role by encouraging their customers to get more involved and, for instance, identifying their views about particular companies and policies and taking these into account when voting shares at AGMs etc.
The press see their role as to encourage more involvement among their readers. However they also acknowledge they are part of the problem, often taking a very short term view for headlines in the following day’s paper. Matthew Bishop even wondered whether there were ways that press/journalists could be rewarded for taking a longer term view!
And what about PR? A number of our clients (Governance for Owners, the Universities Superannuation Scheme, Robeco, SAM and the London Pensions Fund Authority for example) are at the forefront of the debate on responsible investing and engagement with companies and PR is used as one of the tools to help them achieve their objectives. In some instances more could be done to reach and educate and influence pension scheme members and mutual fund investors through the media that actually reach them.
There are a number of key media commentators already supportive of the stewardship approach but as one said yesterday, there’s much too much handwringing and not enough practical action. More could be done to bring other commentators into the fold and to provide a backdrop of encouragement for reforms and legislative change. As with environmental issues, PR can be used to shed a light on egregious examples and create more of a public debate. And it can be used to explain and justify particular organisations’ positions.
The Holy Grail for the stewardship debate is proof that companies taking a longer term approach will over time be consistently valued more highly than those who don’t, because financial incentives will tend to trump other influences on behaviour. This would seem to be self-evident and commonsense but has yet to be forensically proved and benchmarked. If and when it is, the age of the citizen shareholder will properly have arrived.