BOOKSHELF : The New Capitalists – How citizen investors are reshaping the corporate agenda

By: Stephen Davis, Jon Lukomnik & David Pitt-Watson
Publisher: Harvard Business School Press
Reviewer: Reg Birchfield

It’s difficult not to be sceptic. The world is sadly awash with evidence of our innate opportunism, disregard for the common interest and fundamental infatuation with self-fulfilment. So the authors of this piece of enterprise optimism will have tough task convincing readers they have, as they suggest, discovered new “business ecosystem”.
The basic hypothesis of The New Capitalists is straightforward. It’s about corporate social responsibility and the rise and rise of share ownership which, in turn, has spawned an “equity culture” destined, by inference, to sweep the world.
This burgeoning of individual investment in the globe’s largest enterprises is consequence of increased life expectancy, the demographic impacts of the baby boom phenomenon and the resulting squeeze on state-backed pension schemes. Individuals, particularly in the United States but also in Europe and in other developed and developing economies, are resorting to corporate investment as hedge and means by which to deliver their retirement needs.
There is evidence to support this basic contention. For instance, more people than ever own shares and, taken collectively, individuals who invest their savings hold the majority of stock in many of the world’s largest and most powerful enterprises. In response to the emergence of more diverse pension and management funds, companies have become more transparent and the funds are more active in their various performance demands.
The conclusion Stephen Davis, Jon Lukomnik and David Pitt-Watson offer is that this trend toward wider and lower-incomed shareholder base is driving business to become more ethical. Modern capitalism is being transformed through more enlightened and socially responsible shareholder power. Mmmmmm!
The authors believe shareholders are flexing their power as never before; that constitutional reforms are transforming boards of directors; that new institutions are being created to monitor company performance according to new metrics that reflect the new capitalists’ broader concerns and suggest citizen groups are “finding the capital markets new avenue through which to influence corporate behaviour”.
The authors predict “civil economy”, one in which population of “new capitalists” is “seizing influence over the corporate agenda”. Their case is made and peppered with interesting anecdotes, such as the apocryphal story of the gaggle of nuns who forced General Electric shareholders meeting to adopt their resolution on greenhouse gas emissions – much to management’s surprise and the company’s ultimate benefit. But ripples like this do not tsunami of change make.
Having explained the characteristics and rationalised the emergence of this new capitalist ecosystem, the authors offer some advice on how to successfully participate in the process. For corporate directors and managers it is all about “management practice” and “management accountability”. The time has come, they say, “to reengineer management thinking to take this bedrock fact [that most of our largest corporations are owned by millions of people] into account.”
Management practice is about focusing on sustainable growth. When it comes to management accountability the authors suggest some specific actions such as making board elections more meaningful; putting critical shareowner issues to the vote; splitting the chair and chief executive’s jobs; professionalising the organisation’s corporate governance; modernising reporting; and empowering stakeholder relations effort.
It is an absorbing tale compellingly argued and with some specific action points to consider. The authors suggest that “circle of accountability” is forming in which “institutional investors accountable to their savers will push corporations towards sustainable prosperity through responsible management”. But the shadow of doubt cast by fundamental human characteristics of greed, apathy, ignorance and the intoxicating exercise of power, make it hard to buy this ideal without serious reservation.
Citizen investors are simply one player group in complex montage of commercial, political, social and economic pro-cesses playing for competing stakes at an extraordinarily aggressive table. Business has generally proved adept at calling other players’ bluff when the chips are down and seems likely to continue to do so for some time yet. There have been fringe changes to the rules along the way that have improved some of the odds in favour of more responsible governance, but citizen investor power still doesn’t look to have the winning hand this book implies.

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