In between launching, scrapping and then relaunching the furlough scheme, unveiling another emergency support package and figuring out how to borrow another couple of hundred billion without anyone noticing, Chancellor Rishi Sunak is finally about to do something useful for the long-term strength of the City. The government is about to launch a review of the listing rules on the stockmarket, tasked with making floating a company more attractive. Lord Hill, a non-executive director of the Treasury, is being lined up for the job.
Action is clearly needed
Something needed to be done. The number of companies listed on the London market has almost halved over the last two decades. Over the last five years it has dropped from almost 2,500 to a little over 2,000. It is still falling and hardly any new businesses are joining (there were just ten Aim floats last year, and 26 on the main market).
This is not just a British issue. The same thing is happening on Wall Street and on most of the main European markets as well. The rise of private-equity and venture-capital firms means there are plenty of other ways to raise capital without all the hassle and scrutiny of a full listing, and the increasing burden of regulation has increased costs dramatically. At this rate, in another couple of decades there won’t be enough companies to have a FTSE 100 index anymore. We will have to go back to measuring the FT-30. That matters. If there aren’t any companies on the market, and if the few that remain date back decades, then ordinary people have no chance to share in the wealth a market economy creates.
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There is a case for change and there are two obvious places to start. First, ditch the corporate governance rules. Over the last 30 years we have introduced a new code for quoted companies to follow on average every two years. There are guidelines on when financial statements need to be published, and in what form, and when and how you can release them to the public. There are rules on who sits on the board, and how much they can be paid, and now there has to be the right number of women as well. Pay scales have to be monitored, and length of service. There is almost no decision a quoted company can make without having to check it complies with one of the codes.
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And yet over that time there has been no noticeable improvement in the way companies are run or in the performance of the market. The FTSE is still trading at below the level it was at the end of 1999. Most investors would probably have been happy to be “protected” a little less if it meant the value of their portfolio went up.
Second, we should scrap minimum listing requirements. Lots of founders, and tech founders in particular, don’t want to give up control of their business. Why would they? They created it, and they almost certainly care about it more than anyone else. They mainly just want to cash in some of their shares, and they want some of the kudos and status that comes with a public listing. If they only want to sell 5% of the shares, and if they want to put some restrictions on them, then that should be fine. Sure, there is some risk for investors. But in return they will get a slice of some of the fastest growing companies around.
One rule to rule them all
In fact, we could strip the rules back to one very simple stipulation: a company has to be able to publish three years of audited accounts and financial statements, double checked by a genuinely independent accountant. It can show a profit, a loss, and any kind of balance sheet, and shareholding structure it likes, so long as it is open and transparent about it.
Beyond that, it should be up to individual investors whether they want to buy any shares in it or not. Once it is listed, it should have to publish those accounts once a year, and get them independently checked, but after that how it is run should be up to the shareholders and the board. And that should be it. We don’t need any further rules. We just need to sweep away the codes and regulations. Instead of a review, Sunak should just get on with that – because it is clear that two decades of intrusive regulation have not made the markets any better.
