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If you’re reading this articles you probably either own shares or are thinking of owning shares very soon.
Good for you! At MoneyMagpie we are keen on everyone owning some shares, whether directly or within funds, and the easier and cheaper the process of buying and selling them can be, the better.
However, once you own them there are many improvements that could be made to the way shareholders (you and I) are treated by the companies we effectively ‘own’.
Marryn Somerset-Webb, FT columnist and editor of MoneyWeek has written a guest column for us here, explaining what she believes needs to be done to make share-owning more attractive and more profitable for British consumers.
These ideas, and more, are in her latest book ‘Share Power’ (Short Books, £9.99)
She wanted everyone to feel the same.
And the best way of doing that?
She reckoned it was to make them shareholders – to sell them shares in the many nationalised companies in the UK at the time and so give them a tangible stake in corporate Britain as part owners of it.
That would make them engage with capitalism (the good and the bad) and ensure they reaped the obvious rewards of its success (the dividends and capital growth) at the same time.
She did a pretty good job. A huge number fo companies were state owned in 1970s Britain – think Thomas Cook, Cable & Wireless, Rolls Royce and British Steel. They all moved to the private sector with every possible incentive used to encourage people to apply for shares.
BY the end of the programme the number of individual shareholders had risen from three million people to nine million – some 15% of the population.
Unfortunately it didn’t go quite as Mrs T had planned from there.
Most people never bought another share, and those that built up little portfolios generally ended up trading them in for a car or a holiday. There was, says stock market historian John Littlewood, “no evidence that privatisation created a new culture in of individuals owning shares in companies across the stock market.”
If only Mrs T could see us now.
Today everyone is an owner.
There is however a problem.
While we are mostly owners we don’t feel like it – our equity ownership isn’t giving us the sense that we are engaged with or have any power over the world’s big companies.
That’s partly because a lot of us don’t know we are owners (a large part of the population do not know that having a pension means owning shares).
But it is also because we do not use our votes.
Every share comes with a vote we can use at AGMs to influence company behaviour.
But as we know most of us hold our shares on platforms or via funds – we are often not the technical owners of our shares: the beneficial owners, yes but not the technical owners.
The result? We have delegated our votes to the worlds’ big fund managers – who rarely ask us how we would like them used. The good news is that we can change this – and start the process of taking back the power Mrs T wanted us to have in the first place.
This is no longer a question of technology (that’s the easy bit!); it is simply a matter of institutional and regulatory will.
What, then, should we be asking of the regulators, of our listed companies and of our fund managers?
Here are some ideas….
First we must use the votes we do have.
It must be made as easy as possible for investors who hold shares in individual companies to get and use their vote and to be in direct contact with the companies in which they hold those shares.
One share, one easily accessible vote.
Second those of us who hold our shares inside funds (most of us) must demand more information.
Every fund manager should be sending their clients transparent information on their holdings as well as on how they have voted on all the resolutions open to them on a regular basis.
You can usually find stewardship and voting records on fund manager websites. But why should you have to look?
They should also be telling every end client exactly what they have in their portfolios (however many hundreds of companies that involves), what those companies do and what votes are coming up that might affect how they do it.
They should then be asking them how they would vote and taking that properly into account – and explaining why they vote differently if they do.
Agree or explain.
Third, we must insist on physical AGMs being held, well-advertised and accessible to all.
AGMs are another obvious place to start.
In 2020, almost all AGMs were closed to physical investors (fine under the circumstances). But in the UK, some 30 companies also offered no way at all for retail investors to participate (not fine).
Since then companies have started to realise that the online infrastructure actually allows them to have very inclusive AGMs (communicate them correctly and suddenly you’ve got thousands and thousands of attendees).
Going forward, it should be mandatory for all companies to have very well-advertised physical AGMs – but also to livestream them.
Next we should work to make listing easier.
There is no point in us all being mad for the stock market if there aren’t any listed companies to invest in – and until recently the number of listed companies has been in sharp decline.
So alongside measures letting the world’s listed companies know they have to listen to owners, we need to make it worth their while to bother listing in the first place.
We could start with an overhaul of the relentless regulation and cost that put them off – particularly for smaller companies. No annual report needs 50,000 words.
My MoneyWeek colleague Matthew Lynn puts this well. Over the last 30 years, he says, “we have introduced a new code for quoted companies to follow on average every two years. There is almost no decision a quoted company can make without having to check it complies with one of the codes.” That makes being listed hard. We can make it a little easier.
Taking out debt is currently treated much more favourably by the system than selling new shares to raise money. This kind of tax favouritism incentivises the former over the latter.
The system can be changed (by any government willing to stand up to the many lobbyists who don’t want it changed).
However, given the huge long-term social and economic value of companies being listed (and us knowing they are listed and effectively community owned) rather than private, we should also be offering listed companies tax breaks to get them to market.
Perhaps a lower corporation tax rate for the first three years of being listed?
Or a lower rate charged to all smaller companies listing?
Again, this isn’t hard – and could be completely transformative.
The same goes for tax breaks on capital gains for founders who list. How about a lower rate of capital gains tax for those who list over those who sell privately?
Finally, directors – let’s make them care about individual investors!
One thing we could easily regulate for– is for all companies to have one non-executive director who is responsible for engagement with end beneficiaries – us – not with the big fund managers (there’s plenty of this already).
None of these things are going to happen overnight. But shareholder democracy is very far from dead.
The majority of people living in developed countries are in one way or another owners of capital and hence of companies – be it via a fractional stock held in Robinhood or a long-term holding in a pension they don’t yet quite understand they have. That makes now the perfect time to work on making things better.
Good managers will eventually grasp that this is one of the greatest marketing opportunities ever (“we give our clients a voice”) and move fast. And if you have individual shares you can vote, use them.
It is your employer who chooses where to auto-enrol your pension contributions and the default fund they end up in.
That gives them huge power.
Get them to choose a manager who might give you a voice.
If we can do all this and in doing it make sure everyone knows they have a stake in the system and some influence over it, the future will contain not just the kind of prosperity that free market capitalism always brings, but the kind of inclusive capitalism we can all get behind.
Capitalism is good.
Shareholder capitalism is better.
Find out more from Merryn Somerset-Webb in her book ‘share power’ (Short Books £9.99)
This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.