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The equity markets with which we are familiar came into being in the 19th century to finance railways and railroads. Railways and railroads were...
Rolls Royce's recent “deferred prosecution agreement” shows again that senior executives appear not to mind paying out large amounts of shareholders’ money to escape any personal liability for their actions.
Background and responses to specific questions:
John explains the one thing he'd do if he could now revise the Kay Review of UK Equity Markets and Long-term Decision Making and identifies ways to improve corporate governance.
When a corporation is unable to meet valid claims, control passes to the holders of these claims in a legally defined order of priority. But, as finance has grown more complex, these rules have come to look more shaky; they can falter dangerously in modern banking or in the case of a struggling retail business such as BHS.
Buffett's method is to find well-run companies and give them more freedom than they would enjoy on public markets. Yet other conglomerates use financial engineering and impose “transferable” management skills.
Who owns a company? The answer is that no one does, any more than anyone owns the river Thames, the National Gallery, the streets of London, or the air we breathe. There are many different kinds of claims, contracts and obligations in modern economies, and only occasionally are these well described by the term ownership.
The Savoy Group and Google both adopted share structures that give individuals disproprtionately greater voting rights than their diverse set of shareholders. It has worked well for these companies and their investors over the long run. Perhaps we should reopen the debate over share structures?
The financial sector in the 1980s and 1990s was characterised by a rush to incorporation. The mantra of “shareholder value” restored the nexus between finance and business that Smith had feared and Brandeis denounced. And the stage was set for negligence and profusion to prevail once again.