In praise of disinterested kindness

Chris Hodge FCG discusses 'long continued and disinterested kindness’ with regards to investors in a company. 

On a recent visit to my parents we dusted off a few family heirlooms. One of them was a silver platter with an inscribed tribute to my great-grandfather, dating from the early 1900s.

He lived near Camborne in Cornwall and had invested a bit of money in one of the local tin mining companies. The platter had been presented to him by the company 'with grateful thanks for his long continued and disinterested kindness'.

Like any good social media influencer, my first thought on reading this inscription was: 'I must be able to exploit this for a blog' – thus failing dismally to live up to the example set by my great-grandfather, regrettably.

If you asked directors of listed companies what they want from their investors, I think many of them would ask for something like ‘long continued and disinterested kindness’ - investors who aren’t looking to make a quick profit or demanding large dividends, but who are willing patiently to support a long-term strategy which they believe will ultimately benefit the company and its other stakeholders as well as themselves.

Investors like that are not as easy to find as they were a hundred years ago, and the typical company’s share register has changed beyond all recognition. My great-grandfather lived a mile away from the mine in which he held shares. I like to believe that he felt that he was investing in the community as much as in the company.

Today, few investors have that sort of local connection. Institutional investors dominate the listed market, with over 50% of the market owned by investors from outside the UK. Many of them would argue that they do, indeed, act in a long-term and ‘disinterested’ manner, but in relation to their clients and beneficiaries.

You can debate whether asset managers really are disinterested in practice; in his report on decision-making in UK equity markets, John Kay argued that the markets currently operate in the interests of intermediaries rather than the individuals whose money they are investing. In principle, however, the institutions are right to say that their fiduciary duty is to their clients and beneficiaries, not to any individual company in which they invest. If they have to make a choice between doing the right thing by the company or by their clients, the latter prevails.

Companies, in turn, are being expected to be much clearer about how they are balancing the interests of shareholders and other stakeholders.

In both cases, though, it does not always have to be a choice. Stakeholders can be investors too. And the individuals down at the far end of the investment chain whose money is being invested by the institutions – you and me – are all somebody’s stakeholders, whether as employees, customers, suppliers or members of the local community.

There are encouraging signs that some institutional investors have recognized that and are starting to incorporate the impact on stakeholders into their thinking, in the same way as companies are doing. There has been a huge increase in impact and ethical investing, for example, largely driven by demand from so-called ‘end investors’. That demand is also one of the reasons for the increased focus on investor stewardship, from regulators as well as from institutional investors themselves.

At a high level, we may be starting to see some alignment of interests between investors and stakeholders, at least in terms of what they want from companies. Where that exists, there is a fair chance they will also be broadly aligned with the long-term interests of the company as well.

We’re not there yet, but perhaps we are on a verge of a long-awaited comeback for ‘long continued and disinterested kindness’.

The author of this article is Chris Hodge FCG, Policy Advisor at The Chartered Governance Institute. Before joining The Institute, Chris was the FRC Director of Corporate Governance.

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