In the MoneyWeek editor’s letter this week I issued a call to arms. Subscribers can read the full letter here (please do – it is a very important subject). The point was to beg the nation’s fund managers to have a go at saving the shareholder capitalism that served us all so well in the 1980s and early 1990s by using their power as owners to force big companies to behave better.
I wasn’t expecting much of a response (the industry isn’t that good at this stuff). But before our magazine had even rolled off the printing presses, one manager was out there saying the right things. “Top investor turns on Google over tax sham” said the headline in yesterday’s Times.
James Anderson of Scottish Mortgage (which holds a substantial stake in Google’s parent company, Alphabet, and which is a core part of MoneyWeek’s investment trust portfolio) went public with this comment emailed to Patrick Hoskings: “My take is that it is in the long term interests of Google and others of that ilk to pay decent rates of tax and that they and others would be best served in taking the lead in volunteering this… they are beneficiaries of state spending on many levels and in return they would get a lot a respect.”
We don’t disagree with any of that – although we do rather think the government has a responsibility to update our old fashioned tax code to take account of the activities of capital-light tech firms, too.
However, as Anderson’s office (Baillie Gifford) is a mere five minutes’ walk from our Edinburgh office I bought him a latte in our local coffee shop (I am keen on BG in lots of ways, but I really look forward to the day when the partners to have saved up enough to splash out on a proper coffee machine) and stopped in for a further chat.
What, I ask, is the problem with other fund managers? It seems clear to most people that one of the things that helps with long-term commercial success is having the support of your host country’s government and population. If the world’s big companies don’t start showing a little love to those people there will be blood on the streets (or the balance sheets at least).
The rise of the middleman shareholder – the fund manager – is one of the least studied economic factors in the economy, says Anderson. This is a “different world” relative to all previous versions of capitalism. Business used to be about the “personal connection of individuals”. Now it is all about “certificates to be traded” – and the incentives within that are short-term not long-term. So big companies aren’t pressured to behave in the same way they might have been 30 years ago.
At the same time, the rise of firms that don’t require much capital means that many of the big firms that come to market now are still largely “founder owned”. That means that they don’t have to – and often don’t – listen to the views of other shareholders and stakeholders.
Anderson’s hope is that this will be somehow self-correcting – that fund managers will start to look more to the long term (there is evidence this is happening) an that the “deeply intelligent people” running the likes of Google, Facebook, etc will realise that if they play their cards right they will get a “position in society” that will make them more influential within society than governments. But that they will only get there by being seen as supporting a common good rather than an elite good.
We’ll be writing much more on this – the Google row has kicked off some fascinating conversations on the nature of our version of capitalism that MoneyWeek intends to be part of! But for now, have your say below – we’d love to hear your views on this core question: has the rise of the fund manager destroyed the good in capitalism?