Class Privilege by Harry Glasbeek

Author:Harry Glasbeek
Language: eng
Format: epub
Publisher: Between the Lines

THE “OTHER” SHAREHOLDERS

In addition to controlling shareholders, major corporations do have a great number of other investors, some of whom hold shares directly, others through intermediaries. The Canadian Securities Administrators’ 2012 CSA Investor Index reports that only 55 per cent of Canadians have savings outside a company-managed pension plan, RRSP, or RRIF. The three most commonly held investment products by these savers are mutual funds (owned by 62 per cent), term deposits or GICs (45 per cent), and individually held shares (33 per cent). The first two categories will include some indirectly owned shares. But the large number of non-controlling shareholders, as individuals, purchase relatively small numbers of shares in any one corporation.

Many of us invest in share markets because we need to save. Many, perhaps most, of us are not investing as risk-taking capitalists; many, perhaps most, of us are not in the share market because we want to participate in the affairs of the corporations. We are, for the most part, individuals who need to provide for our welfare when we stop working or have to deal with ill health and the like. If we act as individuals, the amounts invested, spread across a variety of corporations, will give us very little voting clout in any one corporation. Small investors might have more influence if an institutional investor combines their holdings in a corporation with those of other similar small investors. This happens because many small investors turn to intermediaries, financial institutions that claim expertise and that, by gathering various pools of money, will be able to get better returns for them.

The institutional investor who has the legal voting power attached to those pooled shares might have an effective voice in corporate affairs. But it is doubtful whether this potential will often result in the loss of influence by controlling shareholders. Inasmuch as the institutions that gather our premiums and invest them on our behalf do exercise a voice, their interests in no way coincide with our own. They want as many fee-paying clients as possible. They want to show good, immediate returns on their investments, to keep their clients and to gather more. As Adam Harmes writes in Unseen Power, a 2001 book about the mutual fund industry:

[Money managers] are paid and evaluated on their ability to retain old clients and attract new ones … they must produce strong performance numbers on a … quarterly basis. So while the retirement savings that make up mutual funds and pension funds may have long-term horizons, the men and women who manage these funds do not.12

They favour directors and executives who push for improved share values or good dividends, whether or not this encourages cost-cutting by excising labour or by avoiding investment in expensive technologies that would yield returns in the long term. For many institutional investors, the greater a corporation’s emphasis on short-term positive returns, the better it is for them. They are unlikely to push for more costly social responsibility. Their desire to interfere is most likely to be aroused when executive remuneration is high at a time when shares lose value or dividends dry up.

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