A new model of ownership?

Is the short-term focus of business a result of a "default model" of ownership? That's the conclusion of a report of an independent commission looking into how different approaches to ownership might alter the economic landscape in Britain. The Ownership Commission, a panel of business people and pundits set up in 2010 in the final months of the Labour government's long term in office, has reported on its findings. While it said that the limit liability model of listed companies with widely dispersed shareholders, known as PLCs, has virtues, it has come to be seen as the "default corporate organisational form". Investors, financiers, regulators and even government treat it as the normal way, "to an extent that reduces opportunities for other ownership forms to grow and prosper. Plurality of ownership forms should be viewed as an economic good in its own right," it added. The short-term focus was making it difficult for companies to operate with a long-term business model. "The ease with which British PLCs are open to hostile and foreign takeover is a further concern," it said. The focus given to this form hides the fact that other types of ownership are present and functioning in the economy: private equity, partnerships, families, state-owned businesses, sovereign wealth, employee ownership, and mutuals. The commission, therefore, urges markets and regulators to think more widely about three points:

• Plurality: Recognise the diverse range of ownership available, which gives investors and savers more avenues consumers more choice.
• Stewardship: It is a somewhat woolly term, one that relates to the need for a long-term perspective about the purpose of the business. "Shareholders, trustees, investment management companies and directors should have the definition of their fiduciary obligations widened to include better stewardship, and for this to be better enforced by closer links between the ultimate owners and managers," it said.
• Engagement: Management needs to interact with employees, shareholders and other business stakeholders to increase performance and accountability.

Whether there's any steam behind this report is a little difficult to judge. It was a creation of a different government, after all. But its recommendations are broadly in the direction of travel of other bits of private as well as public policy-making. The 2010 Stewardship Code endorsed by some major investors has changed the vocabulary of investment in similar ways. The commission wants institutional investors to be "required to sign, comply with and implement the Stewardship Code". But the practice of investment is different from the discourse that surrounds it. Much depends upon who is doing the talking.

Source document: The Ownership Commission report "Plurality, Stewardship and Engagement" is a 110-page pdf file. http://www.ownershipcomm.org/files/ownership_commission_2012.pdf