Once a nation of shareholders, the UK is now largely foreign-owned
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Version 0 of 1. Did you know that more than half of the shares of British-registered quoted companies are foreign-owned? Well, they are: 54 per cent of all UK quoted companies are owned abroad, up from 31 per cent in 1998 and from less than 5 per cent at the beginning of the 1980s. We all are aware that many companies operating in Britain are owned abroad, with some industries such as motor manufacturing almost entirely foreign-owned. But these are supposedly British quoted companies, those that are domiciled in the UK. Actually the tipping point was only three years ago, in 2012. As recently as 2010 only 43 per cent of these companies were foreign-owned, making the whole idea of what is British and what is foreign a much more blurred picture than most would think. It also raises a host of questions. For example, does the nationality of ownership matter any more? Are our financial markets determined by overseas perceptions of value? What is the impact on management, or indeed on attitudes in the business community towards the European Union? The surge in overseas buyers is one of the three seismic shifts that have taken place in share ownership over the past half-century. The second is the fall in individual shareholdings, although this seems to have reversed a little in the past two years. And the third is the rise, and then the fall, of ownership by British pension funds and insurance companies. You can catch a feeling for these trends from the graphs. They come from a study by the Office for National Statistics, which every two years takes a look at who owns UK plc. The top graph is a snapshot of the situation now, or rather at the end of last year. The bottom is a moving picture of the way the proportions of ownership have changed since the 1960s. For clarity I picked just four years: 1963, the earliest date in the series; 1981, shortly after the Thatcher Government had taken over and before the big privatisations had begun; 1994 and 2014. I have also simplified the categories – the ONS data is far more detailed. The most obvious fact to emerge from all this is the way the first two shifts noted above interact with each other. Not only is the proportion of shares owned by British individuals in 1963 almost exactly the same as the proportion of shares owned by foreigners now, the proportion owned by foreigners then is similar to that of individuals now. The two groups have changed places. Notwithstanding all the efforts of the Thatcher Governments to re-establish a shareholder democracy, to mirror the growth of home-ownership, individual share ownership actually trended down.
But in the 1981 and 1994 periods there was a surge in equity ownership by British pension funds and insurance companies – a surge which is now history. During that period, pension funds and insurance companies owned half of the shares on the Stock Exchange. Now they own even less than they did in 1963. It is as though the famous “cult of the equity” never happened. These shifts undermine many of our assumptions of how share ownership ought to work. For a start there is the issue of the responsibilities of shareholders for corporate governance. We became used to the idea that institutional investors had a role to play in trying to ensure good board practices, and that they were probably more effective than individual investors in making their views felt. When they owned half of UK the market they had power indeed. It uses to be argued that these big investors were so important that if management was underperforming they had to take action, rather than just sell the shares, because they could not all get out when things started to go wrong. But now they are no longer nearly so important. Indeed insurance companies and pension funds added together own fewer shares than individuals. It would be wrong to say that their views barely matter at all, but real power has moved abroad. If managers’ feet are to be held to the fire, it will be foreign shareholders that will have to do so. One result of this is that the values of the global investment community, rather than the British investment community, will increasingly shape management practice in our quoted companies. I’m not sure there is a huge difference between the two, for two-thirds of those global holders are actually American, so the cultural gap is not as large as it would be were the holders to be, for example, Chinese or even French. And I can see advantages in having UK plc overseen by fund managers with a global outlook rather than a narrower British one. The growing importance of sovereign wealth funds in share ownership may bring a further helpful perspective. These are the ultimate long-term investors, for they have an inter-generational timeframe, investing wealth for the children and grandchildren of the current population. Well-run sovereign wealth funds are surely a good counterbalance to the short-termism of both regular investors and of politicians with at most a five-year timeframe. By the way, Norway’s Government Pension Fund Global, which invests the country’s accumulated North Sea oil revenues, now brings in more money than the Oslo government spends, and has become the global leader in long-term investment ideas.
There is a further twist. Insofar as our Government is successful in attracting foreign companies to shift their domicile to the UK – and one of the reasons for the drop in corporation tax was to try to do so – then the foreign ownership of what are technically UK companies will rise. We become a domicile of convenience. That is great if it also brings employment, particularly top-end employment, and tax revenue. But we would be naïve not to acknowledge that there is a qualitative difference between a British company built up in Britain and one that has simply transferred its legal headquarters. To some extent the perception that Britain is owned by foreigners is simply a result of foreign companies moving here. Still, there will be people who are concerned by the influx of foreign investment funds and the power this inevitably transfers overseas. Just about all governments welcome inward investment. But they are more chary about portfolio investment than direct investment, and the more that people realise the extent of the former, the more political push-back there is likely to be. |