Business, Innovation and Skills CommitteeSupplementary written evidence submitted by UK Shareholders Association

The Kay Review

Having now read or heard the evidence of witnesses in the oral sessions before your Committee, we wish to submit some comments supplementary to our own written evidence.

Session with Lord Myners

In the light of our own evidence you will appreciate that we were delighted to see Lord Myners’s criticisms of the government response which were expressed more clearly and succinctly then we could manage. A parallel organisation also representing individual shareholders has written direct to the Secretary of State expressing concern about the response.

Lord Myners said that he did not think you had a single true owner giving you evidence. In fact our organisation’s evidence is supplied by and on behalf of individual true owners. Our members join our association, and pay their subscriptions, because they are direct personal holders of shares, seek the support which we provide and, in return endorse our efforts to improve the environment in which private investors operate.

That leads on to the question of the amount of shares in private ownership which was discussed in the session on 26 February. First, in case the Committee is not already aware of it, you should know that Richard Jenkinson, Managing Director of Junction RDS Ltd, disputes the official figures claiming that they understate the true position and that the current trend is upwards. He has compiled a massive database to demonstrate this. His work is being taken sufficiently seriously for the FRC to commission an investigation into his figures although that does not seem to have progressed. However, he has also had conversations with the Office for National Statistics and would tell you that they have admitted some changes in their methodology resulting from his comments.

A useful comparison is with Australia where the latest survey shows 39% of the adult population holding shares directly. In the UK the ONS figures measure by households rather than by individuals and have only 15.4% holding UK shares. Comparison of the help provided for private investors on the websites of the respective stock exchanges gives an indication of the differing official attitudes towards them.

We would certainly like to see the proportion of shares in private ownership in this country grow as we believe that a strong private shareholder base is healthy for the economy, it promotes understanding of the ways in which the wealth of the country is generated and provides opportunities for savers under their own control. Private shareholders take a direct interest in the companies in which they invest and ask penetrating questions at AGMs from which the institutions are generally absent. Unfortunately there are factors militating against growth in their numbers including the pressure from advisers to buy funds, the lack of rights through nominee shareholdings, the feeling that only institutions have all the advantages to cope with today’s complexity and the complications of keeping records for capital gains tax.

The Investors’ Forum

We have read Professor Kay’s proposals for an investors’ forum several times and still do not fully understand how this is intended to operate. The intention appears to be to create one amorphous body covering the whole of the UK stock market and we do not believe this can be effective. Clearly the prime objective is to encourage the growth and development of UK plc with the secondary, but vital, objective of the benefits from this feeding down to investors and savers. We believe that specific bodies need to be set up for each company rather than having one forum covering the whole market. UKSA would like to see shareholder committees made up of private investors. An alternative suggestion is for shareholder committees largely made up of institutions but with a private investor element. In both cases these committees would be for consultation and communication. However, this raises the question of whether the point has been reached where the directors of a company are so much in control that a body with positive powers over them is necessary. In this connection it is worth pointing out that according to Ferdinand Mount1, Sir Richard Greenbury (of the Greenbury Committee) now advocates two-tier boards on the Continental model despite having ruled them out in the past. Maybe the time has come to examine more closely how this system operates in continental Europe, bearing in mind that we see a stronger industrial base combined with greater investment and R&D in countries such as Germany which has the system.

Kay Recommendation 17—rights for holders in nominee accounts

Our written submission to your Committee sets out our position in regard to the Government’s response on this topic. Since we wrote, a Draft European Parliament Legislative Resolution (A7–0039/2013) has been issued incorporating a Draft Regulation which will give member states that have not fully dematerialised a deadline to do so. This, of course, includes the UK. The explanatory statement continues: “In order for shareholders to play a more active role exercising their rights over companies it is necessary that central registers be kept that will facilitate the use of these rights.” It follows that there is now no excuse for the Government to wait on Europe before working fully with the share registrars and representatives of private investors to achieve a satisfactory solution to this problem. Full enfranchisement of private shareholders is essential if they are to be encouraged and to play their full part in achieving Professor Kay’s aspirations.

Roy Colbran
Head of UKSA Government Policy Group
11 March 2013

1 The New Few; Ferdinand Mount 2012, Simon and Schuster UK Ltd

Prepared 24th July 2013