John Mulligan

December 2021

Raising the profile of the private investor – why private investors still matter

Despite the rise of private equity and other obscure groups, accountable mainly to themselves, in most developed capitalist economies the role of the individual private investor remains critical to the longer-term relationship between listed businesses and their owners. Why should this be so?

Forces weakening investor accountability

Surely, it is because those whose savings are held in pension funds, savings accounts and managed funds are the many millions of individuals who are ultimately the part-owners of the businesses whose shares are listed on public stock exchanges. The weakness in this somewhat feeble chain is the fact that the interface between most listed company management boards and shareholders is increasingly via professional managers who, often, do not have enough time or skin in the game to control and manage this linkage in the best way possible to maintain this vital accountability chain.

Over the past five or six decades, since the end of the second World War, a combination of trends has gradually, but inexorably, been at work weakening the established Western-based Investosphere in terms of accountability to the private investor. These trends include: the steady rise of the financial and investment sector as a self-generating growth industry in its own right, the disruptive effects of the rapidly growing tech sector exhibiting strongly monopolistic tendencies and a divisive reward system that exacerbates ever more obvious wealth inequalities that, in turn, is resulting in the growth of a social chasm that may well be one of the drivers of political populism in the West.    

Remedies through Investor Activism

In order to remedy these weaknesses a number of investor groups have arisen throughout Europe to protect the interests of private investors and to improve the levels of communication between companies and their shareholders as ultimate owners. For some reason the private investor involvement in the UK seems to have been proportionately less strong than in many other European countries.

The table below summarises the basic attributes of leading organisations that represent the interests of private investors in continental Europe and the UK. These entities all have the basic objective of strengthening the linkages and accountability between investors and publicly listed companies. A quick look at the table below illustrates the large disparity, in terms of 

private investor involvement between the countries profiled. From the limited information available on European investor groups it is clear that they are much more active in Sweden and Holland than in most other European countries but, at the other end of the scale, the involvement in the UK is far lower than elsewhere in this part of the world. This latter observation may seem strange given that the UK, and London in particular, is one of the main global centres for the investment industry.

Or, maybe, it is the very fact that the City of London has pioneered the development of investment trusts and other entities such as unit trusts and exchange traded funds that has reduced the apparent need for private investors to concern themselves with the corporate accountability gap.

It is, however, the contention and purpose of investor groups such as the United Kingdom Shareholders Society (UKSA) and the UK Individual Shareholders Society (ShareSoc) to fight for the rights of UK-based investors as these bodies believe that the current structure of the “Investosphere” disadvantages private investors and there is a vital need for more action on their behalf.