Duncan’s Economic Blog

Ownership & Governance

Posted in Uncategorized by duncanseconomicblog on August 3, 2009

Lord Myners is once again on interesting form, as Tom notes:

He suggests that Walker hasn’t gone far enough (!) and floats the idea that there could be differential voting rights for shareholders, with those in it for the long term having more influence. This latter argument will be controversial with some investors, who are very attached to the principle of ‘one share, one vote’. But the EU looked at this issue and found now evidence that one share one vote leads to better outcomes. And if such a reform did lead to a more long-term approach on the part of least some big investors, maybe it is a principle worth conceding.

I’m with Tom on this second reform. We need to find a way of incentivising longer term ownership. A tax credit for dividends from stocks held for, say, over one year is one solution. A rise in stamp duty on share transactions is another. Not only would this, hopefully, increase holding periods and shareholder engagement, it would also reduce trading levels and hence lower costs.

4 Responses

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  1. newmania said, on August 3, 2009 at 11:44 am

    I mentioned this amongst my anti Duncan tirade

    ‘….This is especially true of manufacturing and technology and , to my shame, I do wonder about some from of intervention to allow stability whereby investment over a. longer period is possible …’

  2. Tim Worstall said, on August 3, 2009 at 1:38 pm

    “A rise in stamp duty on share transactions is another. Not only would this, hopefully, increase holding periods and shareholder engagement, it would also reduce trading levels and hence lower costs.”

    You what? Imposing a tax will lower costs? What have you been smoking and may I have some please?

    Further, why do you want to incentivise longer term ownership? The whole point of having a secondary market is to make it not necessary to invest for long periods of time.

    Finally, one market (mentioned in the FT report) that has this system is Sweden. So, given that the Wallenbergs control some 40% of the Swedish stock market through precisely such mechanisms, why is it that you want to both perpetrate and perpetuate dynastic and familial control over major parts of UK industry?

  3. duncanseconomicblog said, on August 3, 2009 at 2:01 pm

    It will lower cost iif it leads to less trading and less portfolio curn.

    The problem currently is that no one acts like an owner. the big institutions couldn’t care less, smaller ones are often looking a quick buck and management of listed companies are accountable to no one but themselves.

    Sweden is a pretty extreme case and no I don’t want to perpetuate dynastic control of industry.

  4. Tom P said, on August 3, 2009 at 3:47 pm

    “You what? Imposing a tax will lower costs?”

    if it discourages trading it might do. Watson Wyatt put out a paper a couple of years ago pointing out that the growth in trading was an increasing costs to pension funds for example.

    “Further, why do you want to incentivise longer term ownership?”

    I think Myners’ point was to try and encourage a sense of ownership amongst shareholder more generally. The reason is to try and ensure that the businesses in which they invest their clients’ money are well-run.

    “The whole point of having a secondary market is to make it not necessary to invest for long periods of time.”

    no-one is challenging this are they?

    “why is it that you want to both perpetrate and perpetuate dynastic and familial control over major parts of UK industry?”

    this doesn’t follow from the proposal at all. why would family-controlled businesses result from increased voting power for long-term investors? they’re aren’t any family-controlled fund managers who could fulfil that role from the investor side, and far fewer family-controlled listed companies these days. and with increased voting rights long-term owners might be able to prevent people being appointed to the board because of family relationships.


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