Tomorrow’s Company today calls on company leaders, shareholders and government to put stewardship and responsible investment at the heart of every decision they make in response to the current financial crisis, at the launch of the report Tomorrow’s Owners: Stewardship of Tomorrow’s Company. 

The report reviews changing patterns of company ownership and puts forward questions for a wider debate on the issue. It describes a changing landscape of ownership and points out the reality that not all shareholders want the responsibility of stewardship. It asks “Why should a CEO extend the same time and co-operation to a short-term investor seeking to profit by movements in the company’s share price as to a long-term intrinsic investor?”

The report, published today, identifies sovereign wealth funds, alongside pension funds and private equity, as important agents of stewardship. It warns against making certain types of shareholder scapegoats for the problems and says that the core responsibility for stewardship is shared between shareholders and directors.

It defines stewardship as “the process through which shareholders, directors or others seek to influence companies in the direction of long term sustainable progress that derives from contributing to human progress and the well-being of the environment and society.”

Tomorrow’s Company is calling for the UK’s new Secretary of State for Business, Enterprise and Regulatory Reform Peter Mandelson, the new City Minister, Paul Myners, and the new FSA Chairman Adair Turner, to develop a bias towards stewardship, and develop their own stewardship checklist by which to assess new regulatory proposals, covering everything from the disclosure of short positions to the remuneration of investors.

Initial Conclusions

Some key early conclusions include:

The rise of SWFs as long-term owners with an economic interest: increasingly foreign ownership will become more acceptable as the shift in ownership continues towards resource rich countries such as the Gulf States and the fast growing economies of India and China.

Continuing dominance and influence of pension funds and other institutions with a long-term perspective. These are increasingly in a position to set the rules by which hedge funds and private equity operate.

Growing importance of ESG and SRI as a force, becoming more mainstream for institutional investors and other asset classes as the links with long term performance and risk management become clearer. Private equity companies know these impacts affect their performance. Some hedge funds are already factoring social and environmental into their decision-making.

Stewardship activism. Following the credit crunch and loss of confidence in the financial system, individual/private investors will increasingly ask “Is my investment in safe hands?” Institutions will need to position themselves as good stewards who can manage risks for their investors well and responsibly in contrast to recent examples of stewardship failures by the dispersed shareholder model. A by-product of this will be the growth in public demand to know the motivations, objectives and remuneration of investors, so more transparency will be required.

The continuation of a hugely diverse ‘ownership eco-system’ where many models including family, employee-owned and social enterprise thrive. It is a myth to believe that the large company with dispersed shareholding is or will suddenly become the dominant model. Family-owned businesses produce nearly 60% of the world’s GDP. Going forward there will be more mutual learning across ownership categories.

Questions for the Future

 

This report represents the first stage of a longer programme of dialogue and research. Looking ahead, there is a series of underlying questions that need to be addressed in the Tomorrow’s Owners programme.