👉 Do you think companies should care more about climate change and reducing the gender pay gap?

👉 Did you know that every share you own in gives you a vote in company decisions?

👉 Have you ever heard about shareholder activism? Amazon shareholders rejected 15 motions on worker rights and environment.

💸 If you feel like you have no control over the way corporates run our economies – you’re not alone. Merryn Somerset-Webb, Editor-in-chief of Moneyweek and columnist for Financial Times, noticed how disengaged people were feeling about capitalism, and thus decided to dig deeper and look at ways in which we can return power to the ultimate owners of corporations – the shareholders. While most of us own stakes in companies, we fail to exercise the power that brings – and in this episode, Merryn talks about why it’s time that changed.

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1. why we are disillusioned with corporrates

• When Somerset-Webb talks about what inspired her to write the book, she makes two notes. First, it was her observation that during the pandemic, the stock market was suddenly working in the way that it's supposed to work, connecting companies and investors, companies raising money, investors getting involved and lots of new IPOs. The other driver behind writing the book was noticing that young people in particular say that they are falling out of love with capitalism.

• An increasing number of people are thinking that this isn't a great system — that they’d prefer a different kind of system because they feel increasingly unengaged with the current one. There is this idea that there's a class of the super rich and then there are corporations, all of which operate in some kind of sphere above and beyond ordinary people, that we have no engagement with and no control over. The problem is that we feel separated.

• However, corporations aren't separate to us, we are them, and they are us. We are the employees, we are the suppliers, we are the customers. And we are also crucially, we are the shareholders, we own these companies. Maybe we don't know that we own them, we don't actively own them, but we do own them. So we are part of what we think we are separate from — and if we adjust the system to make it work for us, we can have some kind of control over the way the corporate world works as well.

• Often, people feel like investing is something that other people do. While it is true that there was a period when it was definitely something that other people did, now, today, if you are in work in the UK, you are very likely to have a pension. You'll be auto enrolled into a pension, which means that around 80% of the people in work in the UK have an auto enrolment pension. That means that they are by default, invested in equities — so they own shares.

• The percentage of the population that actually owns shares is huge. We haven't noticed that we own, and we don't know how we own, and we don't know what to do about owning either. So we have it, but we don't know that we have it, and we don't use it — which is a huge shame.

2. understanding share power

• Every share comes with a vote. Some people have more votes than other people, but basically it means that one share = one vote. This means that shareholders should be the ones who tell companies how to behave. If you go back, when the limited liability company was first invented, it was possibly the most amazing innovation ever — it was the thing that allowed all our industrial revolutions, the thing that allowed companies to raise money that they could put towards risky endeavours, because it was only the limited liability company that allowed investors to put in money and only lose what they had put in.

• Before that, you'd be liable for all the debts that a company had they gone bust. Investing was an extremely dangerous game. So you could only do it in small groups and need absolute trust.

• It eventuslly became possible to raise large amounts of money from large amounts of people and invest in exciting things. This is where all the economic and technological innovation for the last couple of hundred years has come from. However, even when they first started, people began to say, well, there could be a problem here. If shareholders are very diverse, they are all over the place. They can't get together to chat and control the directors. You end up in a position where it is the directors that end up running the company — we call that managerial capitalism, where the managers effectively have control of something that doesn't belong to them, that belongs to shareholders.

• Eventually, we moved towards something called shareholder capitalism, where a seminal article written by Milton Friedman back in 1970 ‘we have to change this and what we do is we give the managers one goal and one goal only. If we give them that goal, everything else will fall into place — and that goal must be to make as much money as possible for shareholders to return everything possible to the shareholder.’

• The problem is that the shareholders became a different group of people. We own shares on platforms such as Hungary, Lanstan or Interactive Investor, AJ Bell, etc, while others own individual shares in individual companie. Gradually, however, we tended to stop holding individual shares and start holding units in funds — so lots of money bought together, and invested as a group in different sets of shares run by fund managers. This meant that suddenly, shareholder, the rights of the shareholders didn't go to us. Instead, they go to the fund manager — which means that the fund manager has all the votes. Unfortunately, this means that the democracy in the system disappears, and the owner no longer has a vote.

3. the influence of the shareholder

• Somerset-Webb believes that all companies should continue to have physical AGMs (annual general meetings). Thee whole point of an AGM is that directors should feel the pressure, but also that people can attend digitally, which would be a wonderful advance because it means older people who don't necessarily want to travel but who feel very engaged.

• Younger people who are at work and can't travel but also want to feel engaged, can participate in AGMs digitally. This will bring us a little closer to the companies we're invested in.

• Amazon had a very interesting case of shareholder activism recently. An activist investment platform called Tulip Share managed to get a resolution about how workers at Amazon are treated. Thousands of investors have already expressed their interest in the, and if individual investors have the ability to vote on a resolution like that, and it's just calling for an independent audit of the way workers are treated in Amazon warehouses, that's exactly the kind of thing that retail investors are interested in and would want to see.

RESOURCES: 

Sources mentioned in the episode:

• Book: Share Power: How ordinary people can change the way that capitalism works - and make money too — Merryn Somerset Webb

You can follow and connect with Merryn at:

• Twitter
  

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