|Companies are owned by their shareholders.
But who are the shareholders?
Companies are either 'public' or 'private'.
Private companies do not have a quoted (or 'public')
share price. The owners cannot easily sell their shares, so they
are of little interest for indivdual savers (although they have
great interest for their private owners). Public companies can be
bought and sold on a market
provided for the purpose. In the UK this is the London Stock Exchange.
Only 15% of the shares on the London market are held
by individuals. The rest are held by 'Funds' - collective investment
vehicles, each serving the needs of a specific group of beneficiaries.
Funds may be 'pension', 'insurance' or 'retail'.
One way to get a pension is to get someone else (often, in the past,
your employer) to set up an investment pool to provide you with
one. These investment pools are the pension funds. They are controlled
by Trustees on behalf of the beneficiaries - those who are, or will
be, receiving a pension.
Small private investors either found it difficult to invest in a
wide enough range of shares to spread their risk or were persuaded
that they did not have the expertise to invest themselves. Thus
grew up the retail investment funds (of which unit trusts are typical).
If you insure your life you will (hopefully) pay premiums for many
years before your descendants get any cash back. This leaves the
insurance companies with surplus cash to be set aside to pay future
claims. That is the origin of insurance funds.
It was a natural development for insurance companies
to marry that position as an investor with their sales and distribution
networks to become big players in the retail investment market.
Their two main business strands are:
- marketing retail investment funds indistinguishable
from those of the regular providers (called 'managed funds'),
- devising products like with-profits policies
that are hybrids of insurance and investment. The funds backing
these hybrids are called 'life funds'.
.......so the beneficiaries
aren't the owners
In all cases the ultimate beneficiaries are private individuals
like you and me. The trustees or corporate owners of these funds
are not beneficiaries. But they have all the rights of ownership
over the funds' investments.
So 85% of the London market lies in the hands not
of beneficiaries but of their agents. These 'agents' often belong
to major corporations acting in most corners of the financial services
industry. It is not difficult to see the potential conflicts of
......and don't forget the traders
The efficiency of the stockmarket means that shares are tradeable
commodities. The managers of many of the funds do not regard themselves
as owners but as traders. So they have no interest in using their
ownership rights for the long-term benefit of the business.
Much of the current weakness in the mechanisms of
corporate direction and control ('corporate governance' in the jargon)
can be traced to this trend.