What did the late Sir Hugh Wontner, Lord Mayor of London and Clerk of the Royal Kitchens, have in common with Google founders Larry Page and Sergey Brin? Determination to keep control of what they regarded as their own business — even though that business was a quoted company with widely dispersed shareholders.
Richard D’Oyly Carte, a theatrical impresario who grew rich on the proceeds of Gilbert and Sullivan operas, built London’s most luxurious hotel beside his Savoy Theatre on the Strand. The Savoy Group, which came to own the Berkeley, Connaught and Claridge’s, hosted celebrities and statesmen from around the world. Wontner served as chairman and chief executive of the group for 40 years.
The hotels exuded elegance — they still do — but their management attached more importance to satisfying the prestigious clientele than to maximising shareholder value. Charles Clore, an entrepreneur who specialised in acquiring companies for their undervalued assets, attempted to buy the group: his failed attack was emulated by another conglomerate whizz kid, Nigel Broackes. The most determined assault was made by Charles Forte . After beginning his business career as proprietor of the Strand Milk Bar, close to the Savoy but aimed at rather different customers, Forte had built his own, larger but less grand, hotel and restaurant group.
Wontner did not regard Clore, Broackes or — especially — Forte as suitable successors in his role as meeter and greeter of the rich and famous. By issuing voting shares to friends and family, he saw these raiders off. Though Forte accumulated almost 70 per cent of the shares in the company, he was never able to secure a majority of the votes. After Wontner’s retirement, and the death of the last member of the D’Oyly Carte family, the group was sold in 1998 to private equity house Blackstone. Today the Savoy is owned by Prince Alwaleed of Saudi Arabia.
Mr Brin and Mr Page have announced a new corporate structure under which a single holding company will control not only Google, their money machine, but also the range of innovative ventures — some wild, some wonderful — that are the product of their creative instincts. Google is becoming a new type of company: a venture capital conglomerate, a cross between Berkshire Hathaway and internet incubator, bankrolling start-up and developing businesses from its internal cash flow.
It is an intriguing business model. And it is possible only because Mr Brin and Mr Page retain voting control of the company even though the main economic interest in the shares is held by outsiders. Wontner’s haughty disdain — in his eyes, the tradesmen’s entrance, not the grand lobby, was the appropriate place for shareholders — is one reason British institutions are today so wedded to the principle of one share, one vote. But are people right to rule out this structure in all cases?
The Savoy Hotel is a national institution, alongside the Queen, the BBC and Wimbledon. Would it have remained so if it had fallen under the control of Clore, Broackes or Forte? Would their more financially focused management actually have generated greater shareholder value in the long run, and is that the relevant criterion anyway? Shareholders in Google (soon to be Alphabet) know what they are buying, and seem to like it (if the rise in the company’s non-voting shares is any guide). And while companies with dual-class share structures are hardly trouble free — observe the tribulations of News Corp and Volkswagen — both have done well for investors over the long run.
It is time to reopen a debate over share structures which has, in Britain, too long been closed.
This article was first published in the Financial Times on September 30th, 2015.