One of the principal recommendations of the Kay Review of equity markets, which reported in 2012 to Vince Cable, the Secretary of State for Business Innovation and Skills, was that major institutional investors should organise to work more effectively together through an Investor Forum.
The Forum began work in 2014 (I agreed to become a member of the initial Board, for two years while the Forum was established, and will leave the Board at the end of this year). In the last two years, it has engaged in quiet diplomacy to provide change at about a dozen large British companies, judging – correctly in my view – that shareholders can best bring about improvements in strategy and governance by private persuasion rather than through a megaphone.
But on Thursday the Forum spoke loudly in public for the first time. The issues concern Sports Direct, Britain’s largest sports retailer, a company built by the colourful Mike Ashley (who still controls 55% of the shares). Ashley’s abrasive management style and lack of concern for conflict of interest have received attention for some time. But in the last year it is the company’s employment practices which have been excoriated in the press and by a parliamentary select committee. As the company’s reputation has shrunk, so has its share price, which has halved in the last year.
The fracas raises two different (though related) questions:
- Many companies are built by brilliant, difficult, autocratic founders. In time, their growth takes them to to a point at which the shares are largely owned by external investors. To what extent should these individuals be able to extend their control and continue to exercise dominance? Think Rupert Murdoch, Sergey Brin and Larry Page, Mark Zuckerberg. Many Sports Direct shareholders have clearly taken the view ‘Ashley may be a bastard but he’s our bastard’, though their patience may be wearing thin.
- The furore over Sports Direct follows directly on the collapse of British Home Stores. More broadly, the era of ‘shareholder value’ is coming to an end. Jack Welch is widely credited with ushering it in in his Pierre Hotel speech of 1981 – and of signalling its exit when he proclaimed in 2009 that it was ‘the dumbest idea in the world’ – something of an exaggeration in a world which contains Donald Trump, but never mind. Moving forward, how should we define the social role and political legitimacy of the large business organisations?