Margaret Thatcher loved to talk up the shareholder democracy – particularly when she was selling off one of the UK’s publicly-owned industries. Which was, as it turned out, quite often. She didn’t, however, talk about activist shareholders.
Central to her worldview was the notion that millions of individuals – for there was no ‘society’ – would invest a few hundred or thousand of their hard-earned pounds in a company’s shares, to make real the symbiotic economic relationship between punter and producer.
“Tell Sid” was the ad-man’s phrase used to promote the first major sell-off in the early 1980s because the generic punter it referred to wouldn’t want to miss out on buying his stake in British Gas – particularly if he knew he would make a healthy profit by selling his stake a few days after the sale, once the share price discount had been wiped out.
Actually, that last bit was not in the ad campaign because, presumably, short-termism – ie. making a quick buck – wasn’t considered as seemly as investing for the long term and building something for the future. Though many of us have enjoyed the good times in the 30 or so years since, we now know where such short-termism can land us.
Which is possibly why something consequential is happening to the company-shareholder relationship. Boards are increasingly facing pressure from a more socially- and environmentally-aware shareholder base, even in the US, where investors have traditionally been supine.
Our last few editions of Ethical Performance have included several stories of shareholder activism, on executive remuneration and performance, to political lobbying, and ESG issues.
On the opposite page is our latest article, emphasising the fact that US shareholders are becoming more co-ordinated and savvy, and want greater transparency and engagement from their company boards. If a company is going to spend money on supporting a political candidate or cause, then the investors would at least like to know about it.
Interestingly, a report just published by Ernst & Young, Four key trends of the 2012 proxy season, confirms the trend. Focusing on the largest US-registered companies, it shows that the initial flurry of ‘say-on-pay’ campaigns on executive compensation three years ago have given way to greater constructive engagement and board accountability.
Activism is more pronounced among small and medium-sized investors and funds. Given the protracted financial crisis, investors are increasingly pursuing corporate governance initiatives on a global scale. Meanwhile, it’s interesting that the sun appears to be setting on Rupert Murdoch’s tenure at News Corp, which despite its troubles still generates pots of cash.
It’s also significant that the move to greater accountability and governance standards is also extending to institutional investors. Institutions are beginning to exhibit the traits of activist shareholders themselves. Perhaps shareholder democracy really is alive.
• Originally published in Ethical Performance in August 2012