Monday, 27 August 2012

Decline of the ownertariat

The whole time I've been interested in share-ownership there have been competing views about what we are actually faced with and what can be achieved. Depending on how seriously you take the word 'ownership' in respect of shares, or rather depending on what you think you own, your view can be quite different. Obviously I'm most interested in how the Left, and the labour movement, can respond and even within that subset of the responsible investment world there seem to be two different conceptions. These are greatly simplified below -  

A more defensive/tactical approach - there is influence in the shareholder-company relationship that can affect working people one way or another. If we get organised we can counter some of the negatives, and even utilise that power in support of other objectives.

A more optimistic/strategic approach - ownership of companies via shareholdings is important and can be democratised. Through systemic change we can reconfigure financial markets to take account of ESG issues in a socially and financially beneficial way.

I suspect that many people shift from what I've called a tactical approach to a strategic one over time. For example, you might start off thinking about some specific employers, and how you can work on the company-shareholder relationship to influence them. From there you start thinking about whether we can broaden out the way that 'ownership' works, and how to ensure that all such relationships take account of employment issues.

Personally, though, I've gone in the other direction. I have shifted from quite an expansive view to a more limited one, and this tends to inform how I see ideas and activity within this field. I find it difficult to see much share-ownership as being ownership in a real sense, and I struggle to see how this will change in a way that can be channeled in a progressive (barf) direction.

For example, it's notable that one idea currently doing the rounds is that of more concentrated portfolios with bigger stakes. The arguments for this seem to be a) that diversification only reduces risk up to a point (a few dozen stocks I think?), after which it tails off b) oversight declines with larger portfolios (obviously) and c) a smaller number of larger stakes increases the financial self-interest in picking the right companies and ensuring they do well.

This is all sounds alright doesn't it? It does, of course, rather undercut the Universal Owner theory that has been very influential over recent years. This claims that since really big investors own everything they can't escape externalities, so they need to be concerned about all companies. But if we going down the route of concentrated 'ownership' portfolios this is no longer the case, right?  

It also looks like a case of Back to the Future. When I first got into this stuff (as a journo, a million years ago) taking large active positions was the reason that bog-standard (ie non activist) asset managers would give for not focusing on corp gov. We know the company really well, if we had concerns about the board we wouldn't invest etc etc etc.

And, more generally, doesn't this model also look a lot like mainstream activist funds? Particularly if part of your big strategic aim is to argue all this stuff from a business case perspective, I don't see what is new? From a strategic perspective of trying to get the market to work better this might make sense, but it might make the life of those taking a tactical approach more difficult. Odey Asset Management has a big, long-term slug in BSkyB - how useful were they in trying to get the board to take the hacking stuff seriously?

Finally, these days I am also less comfortable with suggesting that pension funds and other savings represent a way for the public to 'own' companies. Leaving aside the point about whether shareholding = ownership, it's important to recognise that a) many working people have never been in pension schemes and b) of those that are many are in unfunded ones - NHS, Teachers, Army etc. In the private sector DB schemes with trustees (many of them union members) are in long-term decline. The DC schemes that are replacing them have the opposite effect to that of DB ones on shareholding - atomising rather than aggregating it. In addition most are contract-based rather than trust-based, so member oversight, weak as it often is in DB schemes, is non-existent in DC schemes.

In light of all that, I think that - at least for the time being - Lefties who are interested in this stuff are better advised to focus on the tactical rather than the strategic. When all the stars are in alignment, shareholder-focused activity can be very effective, however equally there are times when you can achieve little. It's not obvious to me that redesigning the pension system, corporate governance, company reporting etc to make shareholder challenge more effective is a good use of limited resources. This is particularly the case if a) 'shareholders' are NOT analogous with working people as a whole and b) as a result we can't rely on shareholders to do the right thing.  

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