Tag Archives: capitalism

02.21.15
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The sleight of hand that separates the owners of money and those who manage it

An article I wrote with Christine Daymon has been published in the Journal of Public Relations Research.

http://www.tandfonline.com/eprint/MRx7cwJEyA4WU8a7WwRz/full

Our study investigates how the definition of ‘shareholders’ are constructed and engaged with through public relations in the Australian financial sector. We found that there is a hierarchy within the stakeholder group known as shareholders which is perpetuated by and through a public relations approach which constructs a discourse of ‘ownership’ that excludes citizens as legitimate stakeholders and prevents their influence in ensuring a more responsible sector.

In responding to the challenges of greater public scrutiny many companies have focused on developing communication strategies that espouse a commitment, through policy and practice, to involving stakeholders in a positive manner in organisation activities. At the core of such strategies is the notion of stakeholder engagement which, ideally, involves processes of consultation, dialogue and exchange with the intention of enabling cooperation and increasing understanding and allows stakeholders such as shareholders, consumers, and employees to exert an influence on corporate governance. In practice, and from economic and legal perspectives, the foremost accountability relationship of managers is deemed to be with shareholders. This relationship is supported by conventional stakeholder thinking whereby shareholders are considered to be a core stakeholder group with a formal claim on a company because their support is necessary for that company to exist. The nature of the relationship between an organization’s management and its shareholders has been explained through agency theory. Shareholders, as the principals or owners of companies, are the primary constituents who delegate their decision-making rights to an agent. Whether or not one agrees with the view that the economic obligation of business supersedes its social obligation, there is a problem with agency theory in that it relies on a definition of the shareholder as one who makes a direct investment in a company (such as an institutional fund, or someone who buys shares through a stockbroker). That notion has become less applicable, and even out-dated, in the modern economy. In capitalist economies today, a substantial portion of the capital that fuels the daily activities and growth of major national and international listed companies is provided by indirect investors (i.e. citizen investors) through pooled or institutional funds, such as superannuation and pension funds, which invest and manage monies on behalf of others. For example, in Australia in 2010, the nation’s central bank, the Reserve Bank of Australia estimated that around 40 per cent of the country’s equity market and 30 per cent of the bond market were owned by Australian-based institutional shareholders, predominantly superannuation funds.

The insertion of an intermediary (i.e. an institutional fund) between the real owners of capital (citizen investors) and the management of the listed companies in which they invest presents a complication for the traditional investment relationship which previously was based on a delegation of responsibility from direct shareholders to management.

The consequences of the discrimination that is perpetuated through public relations’ engagement strategies are that citizen investors are not educated about their role and rights as legitimate shareholders. Nor are they informed of the possibility to influence ethical, corporate decision-making and hold companies accountable for unacceptable actions. This is paradoxical when the same citizens who are passive as shareholders simultaneously may be engaging in public protest against the activities of the very same companies in which they hold investments. We have argued that if the engagement strategies of the Australian financial sector were equitable and responsible, then citizen investors might be motivated to actively contribute to corporate decision-making. The need then for public protest against corporate recklessness might be mitigated somewhat.

Engagement has a moral dimension and suggest that our application of the concept of engagement has been enriched by including consideration of responsibility and irresponsibility and public relations practitioners can contribute to a shift in how citizen investors and the broader community understand the meanings of ‘shareholder’ and ‘ownership’ with their subsequent rights and responsibilities, and potential for influence.

10.13.13
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Democratic capitalism achieves communism’s goal

Phillip Adams’ was bemoaning the failures of capitalism this week in The Weekend Australian, adding it to the pile of other failed ‘isms’ and he points out that we need new answers to stem the widening gulf between those that have and those that don’t. He proposes a hybrid economic model.

We don’t need to invent a hybrid. We have already done it, we just don’t recognise it. Democratic capitalism has succeeded in achieving communism’s ultimate goal. It has shifted the ownership of the means of production to the citizens away from unelected elites. In most Western nations, the citizens provide the money for substantial chunks of the equity markets and the bond markets. It is just when we put our money into our retirement funds, managed by institutional investors, the ownership of those funds is suddenly assigned to those institutional investors. Our money become ‘their investments’. When really, these investors are merely managing our money and it is our money that buys the shares (which are units of ownership in companies), so we own the companies. The key is to make the institutional investors listen to a wider array of voices as to what constitutes a long-term ‘value’ building in a company.

The problem is we are still living in an age that assigns a higher moral value to people with money (or control of other people’s money) rather than people with knowledge. We lionise business leaders for their ability to make money, not their ability to change the world for the better. We agonise that we will not have enough money in retirement to maintain our lifestyle, so we turn a blind eye to bad company behaviour in favour of returns. We value our ability to buy things, more than our ability to understand things.

Perversely though, more and more of us comfortable in our middle class lives are getting uncomfortable about how big business is shaping our society, our planet and the futures of those who may not have the opportunity to worry about whether to go to Bali or holiday at home this year.

If we want this to change, we have to challenge this power structure and its associated values. We need to engage with institutional investors and get them to step up to the plate in engaging with company management and boards on issues that matter to us. We need investors not to punish companies on the stock market when they choose to do something that is better for all of us in the long term, but shaves off some profit in the short term.

Institutional investors need to democratise investing and create opportunities for people to engage with them and share their views. A starting point may be a simple online tool, like Vote Compass. It was used in the latest Australian election to help voters understand what mattered to them and which party best represented their views. A similar tool could help institutional investors understand how we feel about particular issues. Institutional investors could then represent these views to senior managements of companies and hold them to account on behalf of us all.

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