Jonathan Hunt argues that the time has come for Democratic Capitalism
When David Cameron calls for shareholders to make decisions about pay and other issues in the companies they are listed as ‘owning’ he was not, of course, talking about the real owners.
Since World War Two, the 80:20 rule has been more than reversed. In the 1940s, getting on for 80 per cent of shares were owned by individuals. Today, that proportion is a less than 20 per cent. The shares are held in the names of pension funds, fund managers, insurance companies and other parasitical institutions.
The people who run them are little different from the bankers and other fat cats who award themselves and their mates huge salaries and bonuses from money that belongs to you and me. If Cameron really wants share owners to make the decisions, then he should ask us, the policy, pension fund and trust holders.
It is perfectly practical and possible to do so. Not, perhaps, micro decisions as to whether the chief executive of XYZ Corporation should receive his usual multi-million bonus this year, even though the company declared yet another loss, closed down more factories and shops and sold all its profitable subsidiaries.
But they could easily be polled on points of principle, such as who should get bonuses and at what level compared to corporate performance; how that performance is measured. We could also be asked whether or not to support non-executive directors who have a vested interest in increasing the top man’s dosh: “You up my renumeration and I’ll up yours.” The list is extensive, including a choice of sectors we should and should not invest in.
My large tick would go to an option to reverse the suggestion about limiting bosses pay to a multiple of average employee pay, made by Vince and others, to one where average pay was based on the level of that paid to the chief executive. That would keep down costs.
The scheme would not be horribly unwieldy or expensive. Managers have to inform their members at least once a year. They could enclose a questionnaire at little extra cost. If necessary, advice could be offered from investment managers. A majority would suffice, or votes at company AGMs made in proportion to votes cast.
What matters is that the real owners can put their mouths where their money is. Those who benefit or suffer the risks must make the decisions. In doing so, they should take a much closer interest in how the business is run.
It is another form of redistribution, of rights and responsibilities, to go with our other Three Rs: Redistribution of wealth and Redistribution of power. Democratic Capitalism should form a truly radical campaign by this party in 2015.
* Jonathan Hunt is President of Camberwell & Peckham local party and chair of the Southwark Co-ordinating Committee. He is an elected Life Member of the NUJ, and a former parliamentary candidate.
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11 Comments
Mondragon is an example of democratic capitalism. I don’t see Tesco or Reckitts going that way any time soon.
Bring back Liberal Party policy of employee ownership. They are the folk who create the wealth and have a long term interest in the enterprise, as Jock implies Mondragon has a lot to teach us, in those enterprises Labour hires capital. That will frighten the City shysters!
Politicising AGM’s is the quickest route to destroying companies.
“But they could easily be polled on points of principle, such as who should get bonuses and at what level compared to corporate performance; how that performance is measured. We could also be asked whether or not to support non-executive directors who have a vested interest in increasing the top man’s dosh: “You up my renumeration and I’ll up yours.” The list is extensive, including a choice of sectors we should and should not invest in.”
Could you give some more information on how this would work. Are you suggesting that there would be a vote for each company a pension fuind owns shares in? How will pension scheme member know what is right for each firm?
Trustees of pension funds are not always paragons of virtue. For example, take final-salary pension schemes. If you work out the ratio between actuarial value of pension rights awarded and contributions paid, it turns out that the big winners are older, richer people like the scheme’s trustees, and the big losers are the young, the disabled, the foreign, single parents, and so on. Surprise, surprise. I once drew this inequity to the attention of the trustees of a university pension fund, and to the bigwigs of a charity that was being fleeced. Not a flicker of interest. So I agree entirely that controlling shareholders tend to be “little different from the … fat cats”.
@Anthony – but it isn’t the trustees who decide what pension scheme should be provided so I can’t see what point you are making?
@Simon McGrath “How will pension scheme member[s] know what is right for each firm?” They are the owners of those firms. They don’t have to do what is right for the firm; they can do what they like with their own property.
Directors have to do what is most profitable for the company because they act as agents for the shareholders – but the shareholders don’t have to do what is most profitable because they are the owners; they are responsible only to their own consciences.
Thanks Simon: It would be difficult if not impossible for members to follow every company. My proposal is that they should decide such things as what sectors the fund should invest in: green, armaments, tobacco, enginerring, retail, etc, as well as such generic issues as bosses pay, where they would expect the fund managers to apply a gneral rule across the board.
Ian BB: I very much agree about our long-standing policies for employee share ownnership. Mutual ownership is very much on the agenda, as |I hope the current policy panel will pronounce on.
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It makes no sense to knock on someone else’s door saying you want to entrust your money to them, then while the door is open rush in and say you don’t trust their judgement after all, so you will be staying on to watch what they are doing.
Just open a SIPP and invest the money yourself in your own name.
@Jonathan – I don’t think you have through this through. It’s one thing to say that members could vote to avoid certain sectors like tobacco, but the idea that they should decide what % of the fund should be invested in different sectors in absurd. I have been a trustee of a number of pension schemes but we would never have through it our role to make that level of decision.
The trustees decide (after detailed advice and discussion) of the mix between cash/bonds/ equities/property etc of the mix between active and passive management and perhaps in which parts of the world the fund should invest. You simply could not have this dicussion by means of a members vote.
I have not advoated members of a fund making investment decisions without proper profesional advice. I doubt very much that it would vary a great deal from what trustess would decide — unless you are misfortunate in having trustess with particular vested interrests in certain sectors such as estate agents voting for propety, etc., or brokers ramping a particular share.
A lot of people making decisions about their money is a lot safer than a few who may or may not be following their own interests. It is their money, and their capital or incomes that area ffected. The danger is that they will be too conservative, and not do anything too radical.
But I thought our party believes in extending democracy and to beware at all times of People Who Know Best. They usually don’t.