Economic Policy

Beyond shareholder value: the reasons and choices for corporate governance reform

  • Published 8th Jul 2014
  • Authors: Peter Kenway, , Ciaran Driver, , Janet Williamson,
  • Category: Economic Policy

The TUC book Beyond Shareholder Value: the reasons and choices for corporate governance reform includes 17 essays from organisations ranging from the Institute of Directors to the Fabian Society and the TUC. Other authors include Patrick Diamond from Queen Mary University, Vicki Pryce from the Centre for Economics and Business Research, Andrew Smithers from Smithers & Co Ltd and economist and author John Kay.

All of the contributors agree that the current system of corporate governance is not serving the economy as well as it should and needs to be reformed. While there are a variety of proposals for how the shareholder value system needs to change, a number of themes are picked up by several authors, including:

  • Shareholder value is stifling innovation and holding back investment. Several authors, including John Kay, Vicky Pryce and Patrick Diamond, argue that shareholder value is not conducive to company innovation, and has led to a fall in business investment over the last three decades.
  • Shareholder value is closely associated with short-termism. Authors such as Aeron Davis and Dan Corry argue that with the average time a share is held for now reduced to mere days, a focus on shareholder value discourages companies from taking a long-term view. Both Roger Barker and Frances O’Grady agree that even some asset managers, who are supposed to take a long-term view, end up focusing too much on share trading.
  • It is not only shareholders that bear risks or contribute to company success. Frances O’Grady and William Lazonick argue that shareholder value fails to recognise the stake workers have in the success of a business, or the contribution that taxpayers often make through government investment.

The authors broadly agree on two themes for reforming shareholder value – changing who contributes to decision-making both within companies and wider economic institutions such as the Financial Reporting Council, and broader institutional reform to change the environment in which all companies operate. However, there are different ideas for how to carry out these reforms, with some calling for statutory worker representation on boards and others for voluntary stakeholder councils and a wider representation on regulatory bodies.

The book includes a number of proposals for institutional reform including the introduction of different classes of shares to differentiate between short-term traders and those with a long-term stake in a company, and tightening the rules surrounding takeovers. Reforms to company and personal taxation, such as using capital gains tax to encourage long-term share ownership, are also suggested.

About this report
The book, published by the Trades Union Congress (TUC), comprises a collection of essays by authors from the City, politics, unions and academia. It was edited jointly by Ciaran Driver of the School of Oriental and African Studies, Peter Kenway of the New Policy Institute and the TUC’s Janet Williamson.