Abstract
The investment system as it is now in the UK drives business leaders to prioritise the interests of shareholders over those of others. However, it would be perfectly feasible to change institutional investors’ obligations so that they had to take into account the interests of the beneficiaries and small shareholders that they represent in the round, that is as citizens and employees as well as investors. This could be combined with equally feasible changes that reduce the priority given to short term returns; currently these exacerbate the conflict between shareholders and others. These changes in the investment system should be complemented by changes to corporate governance. International and domestic institutions also need to be strengthened and democratised. Democracy itself can also be strengthened, perhaps through processes such as deliberative democracy, or a strengthening and opening up of social movements.
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Notes
- 1.
‘On behalf of’ means that they are beneficiaries of pension schemes and other collective investment vehicles rather than direct owners of shares, but for most purposes the distinction is irrelevant and I have tended to ignore it.
- 2.
In some schemes, pension levels are defined in advance, rather than being dependent on investment performance (‘defined benefit schemes’); trustees then have to consider the interests of the employer, which is normally obliged to make up any shortfall caused by poor investment performance. This section is primarily about schemes where the pension level is not defined in advance and does depends on investment performance—a rapidly growing proportion of the total.
- 3.
The international nature of investment is another complication, since, on the face of it, it is in everyone’s interest to avoid tax in other countries. To act on this, though, would be classic beggar-my-neighbour activity: it is in all ‘small’ investors’ interest for there to be a norm that all companies pay their taxes wherever they are due, and large international investors managers are well placed to establish this.
- 4.
The other standard objection to a transaction tax is that it reduces market liquidity—but that of course is the whole point. Note that it would not be much of a revenue generator; the aim would be to minimise trading and thus the taxes generated by trading.
- 5.
Managers would still want to avoid a very low share price, which might damage a company’s ability to raise debt finance, but they would no longer have a reason to maximise.
- 6.
A significant number of businesses are owned by private equity funds rather than directly by shareholders or pension funds, and they can be relentless profit maximisers. However, the funds that own these businesses are themselves largely owned by the same institutions that invest in the stock market. So, in principle, the same approach can be used to influence private equity-owned and quoted businesses.
- 7.
Another objection sometimes raised is that companies might just list overseas. However, the arrangements would then apply to their UK subsidiaries.
- 8.
There are objective standards of good evidence, but the question of what information to provide may also be contested (as the ‘neutral’ BBC knows well).
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Seaford, C. (2019). Structural Change. In: Why Capitalists Need Communists. Wellbeing in Politics and Policy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-98755-2_10
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DOI: https://doi.org/10.1007/978-3-319-98755-2_10
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