Roger Fox is Vice Chairman of Gloucestershire Area and a Research Fellow of the University of Buckingham.
Our company law is based on the theory that shareholders are the ultimate owners of private or public companies and that major decisions about company management are made at company meetings. The Limited Liability Act of 1855 enabled individuals to be part owners of companies, and be liable for company debts only up to the value of their shareholdings.
The success of this model of ownership is undeniable, but only ten per cent of shares are now held by individual shareholders. Those of us who are shareholders are mostly indirect ones through unit trusts, ISAs, funds of a variety of kinds, and pensions. The individual shareholder is overwhelmed by the holders of large blocks of shares. Fund management organisations hold our savings and some fund managers now have huge scope, administering billions of investments. Some fund managements are extremely successful, and individuals prefer to leave professionals to invest their savings on their behalf.
However, there is a downside. When the board of directors of a company wish to propose a major change in company strategy, a merger or takeover, changes in board membership, board salaries, etc, a company meeting is required to approve the change. There may be a divergence between the attitude of the board and those shareholders who are now indirectly the owners of the company – and they have no way of expressing their views or voting on proposals.
This is not a minor matter because, in recent times, takeovers have occurred in which public opinion seems to have been at variance with that of fund managers, and other proposals on salaries, bonuses, and share options have appeared to be excessive. Even worse – though thankfully rarely – there are cases of boards not providing properly for the pension funds of employees. The recent case of Carillion is an example of how company law has been abused by those who do not respect the intensions of the law and their responsibilities to the wider community.
We need legislation to enable the ultimate shareholder to be able to cast his or her votes at company meetings: i.e to find means of empowering the democratic expression of shareholder views that is more representative of individual investors. This will help curb any crony capitalism and other abuses of company assets. We need to work towards a framework where those responsible for assets behave in a responsible manner towards the future of the company and their employees.
There is also the issue, interwined with the Carillion affair, of controlling monopoly power. Successive Governments in western countries grapple with this issue. We have to be able to robustly limit monopoly power where it is found – otherwise crony capitalism occurs, competition is limited, and the benefits of capitalist enterprise become tarnished.