The ownerless corporation, so christened by Lord Myners more than 10 years ago, is upon us. In its response to a BEIS consultation on corporate governance UKSA has drawn attention, once again, to the scandalous erosion of corporate control arising from the unrestrained spread of multi-owner nominee accounts (sometimes called pooled nominee accounts).
ONS statistics show that 59% of shares in UK quoted companies were held in such accounts (in 2014, latest year reported). It included most shares held by private investors and all shares held in SIPPs and ISAs. Such investors do not have the rights of shareholders, and in particular do not have voting rights. Worse, those rights are not cancelled but belong to the owner of the account – typically a financial institution with different interests to those of the beneficial owners of the company.
The unjustified explosion in executive pay (still understated because the reporting rules allow substantial amounts of value accumulating in Long Term Incentive Plans to be ignored) is one consequence of this absence of control. It has allowed – to take one example – remuneration consultants to be retained by, and accountable to, those on whose pay they are reporting together with their peers.
UKSA believes that beneficial change depends on the recognition of four underlying truths:
1) Good governance requires that complex balances of special interests and socially desirable outcomes must be monitored by a representative balance of voices.
2) Individuals, investing their own money, must be one of those voices.
3) Transparency (or openness) is the most powerful (and cheapest) basis for public oversight.
4) Whatever changes are advanced there will always be an important role for shareholders and it is fundamental that intermediaries should not be shareholders. Only beneficial owners, or the appointed representatives of beneficial owners, should be shareholders and have shareholder rights.