Using Government Pension Pots for Better Governance and Less Clumsy City Regulation
Updated: Nov 3, 2022
The British Government has nearly £100bn invested in listed stocks and shares, mostly via public sector pension schemes. This makes it by far the largest owner of UK stocks.
In spite of this, the government does not consoldiate and use its considerable ownership and voting power to influence corporate decision-making.
Doing so would give it enormous influence over listed companies. That would allow it to reduce onerous regulations elsewhere; replacing them with more tailored engagement. It could also use its voting power to raise profitability and returns for shareholders.
As both a shareholder and investor of public money, the government owes the country a duty to act as a responsible and active shareholder when it comes to these vast investments.
The government has large public sector pension funds, which hold sizable stakes in UK stocks, often through fund managers. They have begun consolidating those public sector pensions (e.g. Brunel, Borders to Coast). What if they consolidated their voting power, and actually used it?! - The first advantage would be you could deregulate UK listing requirements and bureaucracy. Over-regulation has been a growing problem imposing huge costs on companies and causing them to delist or list elsewhere London Stock Exchange battles to avoid irrelevance as red tape swamps the City (telegraph.co.uk). Government could deregulate all those listing requirements (and get rid of the bureaucrats) and then use its own voting and engagement (via its public sector pension shareholdings) where necessary if companies behaved egregiously. - Secondly, you could have more tailored measures through voting and engagement. e.g. it makes no sense to have blanket Climate change rules for every listed company from asset managers to miners! Blanket Woke requirements are equally stupid - of course a legal services or healthcare firm will have more female employees than a miner or oil producer. And how can you do blanket ethnic minority quotas for every business from Seplat (Nigeria) to Watkins Jones (Wales?)! By using voting and engagement instead, government could tailor its rules to the circumstances of diverse companies. - Lastly, government could use its voting power to raise profitability and dividends (and therefore cut pension deficits and public spending). For example, it could propose votes on:
Resolutions for salary caps for companies laying off staff,
The abolition of urban car parking spaces for employees (cutting climate change and freeing up developable land),
Or longer term incentive schemes (paying out only after subsequent 5-10 year performance) to encourage better stewardship by boards and executives. What I love about this proposal is not only its ability to cut red tape but also to ensure government behaves in a responsible and reasonable way. According to the ONS, Government DB Pension scheme equity investments are worth about £80bn (Funded occupational pension schemes in the UK - Office for National Statistics) In other words, the government could hold a few percent of all listed businesses in the UK. Naturally, boards, execs, other shareholders and asset managers will want to co-operate with government on corporate governance. However, with a sizable minority shareholding, government cannot dictate: it has to achieve consensus and follow corporate procedure. This is a constitutional philosophers' dream! Government with broad power and flexibility to use it expeditiously, but also checks and procedures that prevent abuse of power, plus the need to bring a majority on side. Clearly, if you combined this with Merryn Somerset Webb's 'Share Power' proposals, you would go a long way to improving public participation in the corporate capitalist system. The public (through government shareholdings and their own shareholdings) would have more say, and thus get more attention from boards and management. With that sort of public oversight and engagement, you would not need so much inflexible regulation.
Government has billions of public money tied up in British-listed businesses. That money will likely be there for the very long term. It is vital that the government takes up its duty to British business as a responsible long-term shareholder, and its duty to taxpayers as a responsible steward of their capital.