Archive for December, 2013|Monthly archive page

Share Ownership in the UK

Increasing ownership by ‘rest of the world’

At the end of 2012, the UK stock market was valued at £1,756.3 billion. The ownership of UK shares has changed dramatically over a 40 year period. The Office of National Statistics (ONS) surveys indicate that the ownership of UK shares by individuals has fallen from 54% in 1963 to under 11% in 2012. On the other hand, the ‘rest of the world’, which held just 7% of UK shares in 1963, now own over 53% of UK quoted shares. This decrease in individual share ownership and increase in the ‘rest of the world’ ownership is perhaps the most notable change in the overall share ownership figures reported by the ONS in its publication ‘Ownership of UK Quoted Shares, 2012’ which is available at:

http://www.ons.gov.uk/ons/rel/pnfc1/share-ownership—share-register-survey-report/2012/stb-share-ownership-2012.html

The ONS analysis of the ‘rest of the world’ shareholding of 53% of UK quoted shares finds that some 48% of this is owned by investors in North America, just under 26% by European investors and around 10% by investors in Asia. The balance is made up of investors from various regions including Africa and the Middle East.

Corporate governance activism

One of the possible implications of the increase in ‘rest of the world’ ownership, and particularly ownership by investors in North America, is in relation to corporate governance activism. Such investors may tend to be more pro-active than many UK institutional investors have traditionally been and may engage more in their investee companies especially where these are underperforming or where there are corporate governance issues. The California Public Employees’ Retirement System (CalPERS) is a well-known example of a US pension fund which actively engages with underperforming companies and/or with those where there are corporate governance issues. In years gone by its strategy was to ‘name and shame’ with its focus lists but these days it concentrates more on a particular issue, for example, executive remuneration, and engages privately with the company to try to bring about improvements before then progressing to any more public approach.

Improved Investor Engagement

Nonetheless the UK’s ‘vanguard’ institutional investors including Hermes, Aviva, and Standard Life all have a high corporate governance profile and actively engage with their investee companies. Moreover the Investment Management Association (IMA) reported increased levels of monitoring and engagement in June 2013 in their survey of ‘Adherence to the FRC’s Stewardship Code, At 30 September 2012’, available at:

http://www.investmentuk.org/research/stewardship-survey/

The report indicated that more institutional investors monitor all their investee companies; that more resources are being put into the stewardship role and that there is ongoing integration of stewardship into the wider investment process. Investors are also prioritising engagement on key issues. Furthermore there has been an increase in voting level with the decision of how to vote the shares being made independently of proxy agencies.

Concluding comments

The UK’s Stewardship Code set the standard in terms of providing a framework for institutional shareholders to monitor, and engage with, their investee companies. There have been a number of encouraging signs that shareholder engagement is on the increase in a number of countries. In her article, ‘Shareholder campaigns more than double in three years’ (FT, Page 20, 11th November 2013), Sam Jones points out that ‘the past 12 months have seen more than 415 instances of corporate activism across the world, up from 172 in 2010’. This trend is expected to continue as institutional investors, with sensitivities highlighted in the aftermath of the financial crisis, increasingly seek to ensure that their investee companies both have appropriate standards of corporate governance and sustainable returns.

Chris Mallin 5th December 2013

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