Citizen control of Britain’s PLCs

The 'new normal’ is up for grabs and we should actively design as much of it as we can.

Richard Ellis argues that in order to do this we will need to improve our national decision-making. In the second of three blogs, he explores ways in which we can broaden and improve our national debate.

How many businesses do you own? If you think that the answer is ‘none’ then think again. If you are a British citizen then you have a part share, albeit an indirect one, in some of the largest and most successful companies in the world.  These companies include AstraZeneca, Tesco and Vodafone. These, and many other successful companies, may be found in the UK’s collection of public limited companies (PLC).

The ‘public’ in question is, to a great extent, us, the British people. It is true that the companies on the London Stock Exchange attract a good deal of foreign investment, and it is also true that much of the investment in PLCs is made indirectly through investment funds. However, the Office of National Statistics estimates that we indirectly own at least 45% of the value of shares in Britain’s PLCs.  (The figure may in fact be higher in view of the number of UK citizens who invest indirectly via one or more overseas entities.)

We provide our money to our pension funds, our fund managers and, indeed, our government and they then invest that money in PLCs (and elsewhere) on our behalf.  If PLCs do well and pay large dividends then our pension payouts are bigger and our government’s non-tax income is larger. As such, we all have an important stake in the performance of our PLCs. We are not just the employees and customers of these businesses; we are their ultimate owners.​

The New Normal is likely to mean big changes for our economy. Many senior business people will have their say and – as the collective owners of Britain’s PLCs – we should also have ours.

It is important that we should have our say in our capacity as owners (as opposed, for present purposes, to our capacities as employees and customers). One of capitalism’s central ideas is that businesses owners will be ruthless in their pursuit of efficiency, growth and profit. If owners are not properly involved in their businesses, then capitalism will work less effectively.  Sadly, we have hardly been involved at all. Is it any wonder that executive pay at PLCs has ballooned over recent years? These executives are our employees but we have allowed them to set their own salaries.  What did we think was going to happen?  In a very real sense, we have only ourselves to blame. If we want our companies to be fit to face the future then we will need to roll up our sleeves and get stuck in.  

In doing so, however, we should remember to keep our eye on the ultimate prize of making our companies more effective at generating economic growth. We should have our eyes firmly on the bottom line. Let us start by looking more closely at executive pay.​

According to calculations made by the High Pay Centre and reported by the BBC, FTSE 100 chief executives earn more in the first four business days of the year than the average UK worker earns in a year. The same research found that chief executive pay is about 120 times that of the typical UK worker. This is a significant increase from the early 1980s when it is estimated that chief executive pay was 20 times as much as that of the average worker. 

These figures, and the rate of increase, are clearly striking. Before leaping to outrage, however, it is worth considering this point with some care. As business owners, we need to look at this issue from a number of different angles. On the one hand, we must remember that we want our companies to be managed by the best people possible and should not be naïve to the fact that quality comes at a premium.  If we want the best people we will have to pay high salaries.  

On the other hand, every penny spent on executive pay is a penny that cannot be invested in, for instance, research and development or paid out as a dividend. There is a balance to be struck and such a balance would likely see some directors paid less and some paid more. Ultimately, it is our job to ensure that PLCs get this balance right. If we do not look after our interests who will?   ​

Pursuing profit, however, is about more than just getting the sums right on executive pay. If we want our businesses to thrive we should use our role as voters to make sure that our government is doing all that it can to support our companies. This may mean that we need to press for certain regulatory reforms or tax changes and may mean that the government should adopt a new approach to skills training or that we need to work on getting greater access to foreign markets. As responsible owners, we could look to help our companies in all these areas.  Before we can take action, we need to know what our companies need.

From executive pay to policy reform, we need to start having our say and pulling our weight. While we should not seek to micromanage the operation of these businesses (that is why we employ the directors) we can and should set the general tone.  

In practical terms it is clearly impossible for the whole British nation to sit in a boardroom or annual general meeting (even online), we therefore need to work on a representative basis. The best way for the British people to act on a representative basis is through Parliament.

In this case, we need to take more direct control over the relevant representatives, appointing a group of MPs and Peers to supervise our PLCs under our collective guidance. This would effectively be a directly-elected Parliamentary Committee (the PLC Committee). MPs and Peers who wished to be elected to the PLC Committee would produce manifestos setting out the approach that they wanted to take. The candidates would explain the ways in which they wanted to help our businesses and we would make our collective choice via an online vote.

The PLC Committee would start by holding institutional investors to account. It should ask the pension funds what they have done about PLC executive pay. It should ask investment funds what they have done to assess the quality of long-term decision-making by PLC boards. In addition, in looking to correct failings, the PLC Committee should also congratulate institutional investors in instances where their stewardship has been effective, identifying particular PLC success stories and spreading best practice.

Importantly the PLC Committee should also ask these institutional investors (and PLCs themselves) about the legal or political changes that need to be made if PLCs are to thrive.  Are there regulations that need to be repealed?  Does this country have the right skills base? Are any foreign markets proving particularly difficult to enter? Once the PLC Committee has brought this information to light, the government could either pass the relevant legislation or explain why it will not. 

As the first directly-elected Parliamentary Committed, the PLC Committee should lead the way in seeking to engage with the public, seeking citizens’ input regarding the particular issues it should raise, the questions it should ask and the changes that it should champion. This Parliamentary activity should generate a good deal of media attention and should push these businesses into the foreground of public debate.

Of course, PLCs, should not get everything for which they ask. It is also true that what is good for big businesses will not necessarily be good for smaller ones. Nevertheless, all businesses stand to benefit from a more pro-enterprise and business-friendly public debate.

We need to adopt a positive, profit-focussed approach to PLCs. The days of attacking ‘Big Business’ should be replaced by the days of helping to improve them.  We need to get to the stage where politicians speak of ‘our companies’ in the same way that they speak of ‘our schools’ or ‘our NHS’.  ​

Britain’s businesses are going to need a lot of help to recover from the economic impact of Covid-19 and to adapt to the post-pandemic economy.  As engaged owners, we can all do our bit. A directly-elected PLC Committee will help us to help our businesses so that they, and we, can weather the coming economic storm and come out stronger.

Richard Ellis is a freelance journalist and a former researcher for a Member of Parliament.