On 4 May Mark Goyder was an opening speaker in the 30th EU Corporate Governance Conference, held in Malta. The theme of the session in which he spoke was ‘Long-term value creation - determine the future of our economic and political systems’. We need a vision of long-term value creation. The EU needs it. The UK needs it. Scotland needs it. So, do Wales and Northern Ireland and the regions of England and every EU country. In the UK, where a General Election is due to be held, wealth creation deserves as important a place in the debate as the future of the National Health Service, or the state of education in this country. The nearest we get to a debate on wealth creation will be the ritual condemnation of the greed and short-termism of big business. And yet there are some simple and obvious things that we need government to do. I don’t think that they are controversial. They are not the issues that get much attention. Giving them attention in everyday policy, and in the approach to the Brexit negotiations, could make a huge difference. In simple terms the issues are these
Get companies investing and stimulate them and their owners to think as long-term stewards not short term extractors of value
Mobilise abundant capital and put it to good use in the places and the companies where it will make the biggest positive difference – in r&d, renewable energy and human talent
Accentuate the positive – better to risk one or two scandals if that is the price to pay for the creation of five globally competitive high growth companies. Imprinted on all its actions like the words in a stick of rock should be this idea: our economy and society and the wealth of our citizens are only as good as our companies, and the companies that all our policies will encourage will have clear purpose, strong values, a commitment to successful stakeholder relationships and a long-term approach. That doesn’t mean we want all our companies to be the same: far from it. We want them to be different. We want them to explain clearly and publicly what they stand for, so that in the world of Glass Door and involuntary exposure, United Airlines -style, we can hold them to account. The danger of current government policy is that through its actions it unintentionally promotes or facilitates companies which focus on the short term. It does this through its own procurement policy – government buys too short-term and focuses on price, not value or quality. Its approach to takeovers – this still leaves strong UK-based listed companies looking over their shoulder and does not strengthen the stewardship authority of company boards. Its inaction on the interpretation of fiduciary duty – layers and advisors still tie pension trustees up in knots by frightening them away from a focus on creating long-term value and the needs to be clarified. Its approach to remuneration – while it has helped to stimulate action by investment institutions on the pay of directors, the asset managers in those investment institutions continue to be paid and incentivised in ways that encourage quarterly capitalism. So here are five points for a party manifesto focused on wealth creation. In seeking election our party will do everything through our range of policies to encourage:
A focus on quality companies: the creation, growth and retention in the UK of the kind of companies we would like to imagine our children and grandchildren starting or working in, investing in the products and services that those same people most need as citizens. This means ensuring that in practice, directors of companies act as stewards of the business and not extractors of short term value, and it means ensuring prudent companies are not unduly exposed to opportunistic takeover. It means simplifying the task of starting an enterprise, and ensuring in the Brexit negotiations that such businesses have good access to international markets.
Investment for long-term success and wellbeing: this means ensuring that in practice every pension trustee, family office, insurance company and state owner of assets understands that they owe a fiduciary duty to set mandates to asset managers that underpin a focus on quality companies. It also means seeking all party agreement on some core policy areas that will help businesses plan long term, starting with apprenticeships. Government will tilt the balance of incentives and rewards away from day traders and opportunistic asset managers, and towards investors in listed companies who hold shares for the long term in companies they can believe in. A new form of patient capital can be provided by the introduction of investment trusts committed to holding assets in UK companies for the longer term.
Procurement that prioritises quality companies and long-term success and wellbeing. The government will use its purchasing power to reward companies which care about purpose, values relationships and the long term and which have built a robust and capable business on these foundations. That means an end to price-only assessment of bidders for public sector contracts and the introduction of a ‘Trust test’ through which companies bidding for business from the taxpayer can show that they have this focus.
Ordinary people to have a stake in the success of our companies: this means a conscious bias in favour of employee ownership, and the creation of new forms of institutional investor which would more directly focus their investment in the kind of companies that ordinary savers would like to see their children or grandchildren staring or working in. Tax advantages might be given to companies which follow the example of Handelsbanken in creating an employee shareholding trust on behalf of their employees. It also means a strengthening of financial rewards to entrepreneurs who want to build up their businesses and hand them on to their family or their employees, and a weakening of rewards to those who wish to sell the business without sharing the rewards of success with those who have created it.
A focus on place within a context of global competition: Brexit means that regional and local supply chains will need to be strengthened if global businesses are to locate or stay in them. This policy will encourage and reward regional initiatives which bring together the combined energies of companies, investors, planners, educators and civil society to work together to strengthen the economy of the area. Cross Party agreement to leave in place the current structure of Local Enterprise Partnerships and not reorganise such bodies once again is an important enhancement to this policy.