In any case, the problem is most likely less related to the kind of unduly onerous registration requirements identified in Hill’s review and the parallel tech sector review undertaken by former Worldpay CEO Ron Kalifa, as the aforementioned structural deficiencies in the UK economy. Deregulation may help a little, but in itself it will not solve the problem.
There is an obvious irony in institutional investors’ tendency to sell to the highest bidder anyway, as the proceeds are often used to invest in the private equity funds that buy them out. Oddly, there is a devious nature to the flow of money, with the ordinary saver losing out every step of the way.
As foreign and private capital strike with a premium, the box ticking the ESG requirements so dear to institutional investors disappears, with the argument reduced only to price. All other considerations, including jobs, the health of the economy at large, customer service, etc. It is as if the social responsibility they insist on with listed companies does not apply to them; they don’t practice what they preach.
No wonder so many executives positively prefer the semi-secret world of private capital. A director used to sitting on the boards of public and private companies says that up to two-thirds of board time is spent on governance issues in listed companies, and only one-third to the company itself; the reverse is true with private or family businesses. This may be an exaggeration, but the point is well made. Again it’s no wonder that private equieers can see value where public markets don’t.
There are plenty of horror stories emerging from private equity and foreign takeovers, with companies subsequently geared towards eyeballs and stripped to the last bulb in search of a return. Think of Cadbury Schweppes, Debenhams, AA and so on.
It was a rare line of defense offered by Unilever’s Paul Polman when he argued that his margins were lower than those of his potential predator simply because Unilever had a greater sense of social responsibility. Likewise with Pascal Soriot of AstraZeneca, who defended his company by pointing out the potential threat to Astra’s excellent research record.
These are really exceptions, and you can’t help but think that investors would have gladly sold them both downstream if the politicians hadn’t made a fuss.
Good businesses, whether public or private, instinctively know that in order to thrive for their owners, they must have good governance and a strong sense of responsibility to employees, customers and society at large.
They don’t need to codify it in the distracting and waking nightmare of today’s ESG agenda. As they seek explanations for Britain’s incredible purse, it must be predominant among them.