Asset Manager Capitalism: Where Next?

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Asset Manager Capitalism: Where Next?

Executive Summary

The existing investment system fails on several key counts, contributing to wealth inequality while locking the vast majority out of a meaningful stake or say in how the economy is organised; favouring incumbent firms with greater access to and lower cost of capital; and enormously concentrating governance rights among a handful of vast asset management firms. The result is a corporate economy that much more closely resembles an oligarchy than a “shareholder democracy”, with demonstrably negative effects for climate justice, economic inequality, and democratic power. Overcoming this requires an immediate-term democratisation of corporate governance.

Democratising the status quo

Much of the power asset managers wield comes through their monopolisation of shareholder votes gained through their management of “other people's money”. It is time to take back control. To ensure financial intermediaries follow instructions – and better act in the interest of the ultimate investor – the following steps should be taken:

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]Ensure asset managers and other financial intermediaries vote under instruction: asset managers should not vote unless under instruction, unless they are given express permission to do so by a body representing the ultimate investor; they should be instructed by member nominated pension trusts and other financial vehicles, which should be reformed so that at least 50 per cent of the trust are directly elected by the members.[.num-list-text][.num-list]

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]Establish new fiduciary duties for pension trustees (alongside expanded interpretation of existing duties) to incorporate concerns for beneficiaries’ best interests with respect to climatic and ecological stability, financial stability, and fair corporate behaviour.[.num-list-text][.num-list]

While these proposals would represent an advance on the status quo, they are inherently incomplete as measures for building a democratic and sustainable economy. Reclaiming voting power from asset managers for the ultimate asset-owner without transforming ownership risks entrenching and legitimating a highly unequal structure of corporate governance, rather than driving a genuinely democratic economy. Namely, within these proposals, corporate voting and control rights remain based on share ownership, not participation within the activity of the corporation itself, namely through employment. Given steep inequalities in pension participation and financial wealth, this means the wealthiest will be guaranteed a disproportionate say in corporate governance and a share in the rewards. Our ambitions must therefore go further, towards a deeper restructuring of ownership that includes the expansion of new vehicles for public wealth.

Transforming ownership of corporate wealth to give everyone a stake and a say

Ensuring we all have a genuine stake and a say in the economy will require proactive policy to tackle existing inequalities of financial and pension wealth through new institutions that redistribute and democratise ownership. To that end, we propose the following:

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]Establish a Public Asset Manager to ensure greater public ownership of the assets of the British economy, including corporate wealth, to ensure they are used to provide economic and social benefits for everyone.[.num-list-text][.num-list]

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]New firm-level worker funds to give those who create wealth within the company guaranteed collective income and control rights within their company, redistributing them from external investors towards the workforce.[.num-list-text][.num-list]

[.num-list][.num-list-num]3[.num-list-num][.num-list-text]Establish a Green Golden Share in companies deemed to be systemically vital to decarbonisation to be exercised by the Chancellor on behalf of the public and future generations. It should have a number of rights attached, including the ability to propose resolutions, vote at meetings, and critically, the special share should be deemed to be a majority of votes on any issue connected to the elimination of emissions in the company’s production within a 1.5 ºC pathway.[.num-list-text][.num-list]

Extending new forms of broadly shared ownership can ensure more people benefit from corporate wealth created by labour, society, and nature. But in the context of prevailing distributions of ownership, even a large-scale Public Asset Manager, working in tandem with stronger forms of worker ownership and control, will remain a minority owner of corporate wealth. The corporation will therefore remain beholden to financial logics and market discipline, acting as a vehicle for unequal wealth extraction by prioritising external shareholders rather than the inclusive creation of social and environmental value. Therefore, the ultimate goal must be to free the corporation from the disciplining force of financial markets, whose monopolisation of control rights is increasingly unjustifiable, and instead remake the company as an institution of the commons: democratic in governance, purposeful in action, generative in outcomes.

Commoning the company and contesting financial market discipline

The corporation is a complex political and social institution whose current governance by a nexus of financial markets and executive management has turned it into an engine of extraction and democratic void. But we can reimagine how we coordinate decisionmaking processes within the company and beyond the firm, and rethink how production and consumption are organised and financed, so that they are based on democratic stewardship, principles of sustainability, and purposeful enterprise. This will require changes in company membership and governance to be rooted in participation not ownership, as well as shifts in how production is financed.

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Asset Manager Capitalism: Where Next?