Who owns our largest companies?

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There was a fascinating combination of articles I noted recently I’ve been meaning to blog ever since.

John Plender in the FT noted:

The UK’s Financial Reporting Council, the chief corporate watchdog, produced a stewardship code last week in response to City of London grandee Sir David Walker’s recent report on financial sector governance identifying a lack of proper shareholder oversight of banks. The code’s aim is to encourage shareholder dialogue and engagement. It includes seven principles that will operate, like the main UK Corporate Governance Code for listed companies, on a “comply or explain” basis, with a focus on transparency. This builds on a code put together by the main representative bodies on the UK Institutional Shareholders Committee.

With similar initiatives under way in France, Canada, the Netherlands and elsewhere, there is growing interest in the UK’s pioneering effort — which, like the 1990s Cadbury code on which today’s code is based, may well become a model.

Yet there is considerable uncertainty as to how such codes will work — not least because the investment community is so disparate.

Plender reproduced data from the ONS suggesting that ownership changes have looked like this:

 

But then I noted another FT article that said:

The amount of the UK stock market owned by overseas investors could be less than half the level suggested by official government figures, according to new data seen by the Financial Times.

Share ownership by individuals and company directors is as much as twice the figure contained in the official figures, while ownership by pension funds and insurance companies is lower than was previously thought, according to a study by Junction RDS, a shareholder analysis group.

It calculates that the amount of the UK market held by overseas investors is under 20 per cent, against Office for National Statistics figures showing foreign ownership of more than 40 per cent.

The UK Statistics Authority, the monitoring body for government statistics, is looking into the quality of the ONS data after being alerted to the findings. The ONS said it was confident in the methodology used to compile the official share ownership data.

However, flaws in the ONS calculations, which feed into the national accounts, could have led to an underestimation of individual dividend income, and the amount of tax generated by an increase in capital gains tax.

Junction RDS has examined the shareholder registers of every UK-domiciled company, compared with an ONS methodology looking at about 200 companies, or less than 10 per cent of the UK market.

The reality is clear. we don’t know who owns companies. There are enormous consequences. One is for tax. Another for corporate governance. As a Guardian article recently reported this also has impact on corporate behaviour:

Modern businesses are "soulless corporations" that are in danger of becoming a "cancer" on society, a leading UN environmental official warns today.

Companies usually take a short-term view of the importance of the environment, said Pavan Sukhdev, head of the UN's investigation into how to stop the destruction of the natural world. This short-term thinking is seen in their lobbying against new policies that could slow environmental devastation, he said.

That’s only possible because over so long we have allowed companies to be utterly detached from their ownership — whatever ownership of a share means.

I suggest that’s a massive mistake — and has handed power to an elite — and an abusive elite at that. We have all lost as a result — yes them included. Sir Fred Goodwin’s children had to be taken out of the country.

So what do I suggest? Three things:

1. All shares must be recorded in the name of the beneficial owner;

2. Except for quoted companies or regulated registered mutual funds such as pension funds beneficial owners have warm bodies;

3. Beneficial ownership must be proven before title to shares can be claimed — in other words shares without proven ownership should be forfeit.

I accept this is radical.

But we have to hold corporations to account. And that starts by holding shareholders to account.