Putting retail investors’ confidence to good use

Retail investors are much in focus and Boscobel collaborated with the pollsters, FindOutNow, to understand in detail who they are and what they want.

We uncovered quite a few myths and truths, relevant to policy makers, the investment industry and corporates raising capital or engaging with investors. You can find a link to the full report HERE.

Our estimate is that some 400,000 new investment accounts, bringing £20 billion of new inflows, have been opened in the UK during the pandemic. But this is an acceleration of a trend. According to the Office for National Statistics, the proportion of shares owned by individuals rose to 13.5% in 2018, up from a low of 10.2% in 2008.

The new generation of investors is younger (average age 37 compared to 48 for established investors); more likely to be female (41% compared to 30% of established investors) and more likely to live in a home with a mortgage or in rented accommodation. They are also more likely to have been furloughed.

While it is true they have a higher risk appetite than established investors, they have not been sucked into highly speculative investments to the same extent as their US peers. They are more likely to buy single stocks (35% compared to 28% for established investors), including Tesla and Amazon. But when asked a free text question about their investments, premium bonds are the favourite by a substantial margin.

We asked where they get their investment ideas and new investors are more likely to use social media (9% compared to 4% for established investors) and more likely to listen to friends and family (15% compared to 10% for established investors). However, both categories do follow the ideas of investment platforms and brokers plus specialist financial media.

The big lesson for corporates is that retail investors’ higher risk appetite is an important source of growth capital. According to Primary Bid, retail investors participated in 57 capital raises last year. In her column in the Financial Times, Merryn Somerset-Webb cited the research and made the very good point that retail investors have discovered that they, “have power and can use it to make companies behave as they want them to,” in relation to governance, environmental standards and boardroom pay, as well as business performance.

Interventions by central banks and Governments have helped drive global stocks to record highs, though the FTSE remains a laggard after several years of political uncertainty.

The challenge for the investment industry and for policy makers is to ensure that new investors channel their enthusiasm into sustainable long-term portfolios of diversified holdings, as opposed to gambling on fashionable but risky ideas.



A stunning diplomatic achievement

The EU and UK agreement could ignite a dramatic economic recovery, as long as we rediscover timeless and useful principles

As somebody who always refused to accept the false “No Deal v 2nd Referendum” narrative which somehow took hold in the last four years, I am personally delighted by the new Trade and Co-Operation Agreement between Britain and the European Union.

It is a stunning diplomatic achievement and of great credit to the negotiators on both sides. This is especially so when you consider their difficult remit, the complexity of the issues and the dispiriting backdrop of the last few years. Boris Johnson and Lord Frost, Britain’s chief negotiator, are right when they say, “it should be a moment for national renewal.”

That said, whether it is or not depends on how things work and evolve in practice – the agreement is governed by some 19 committees – and what we as a country choose to do with our new found, sovereign freedom. I have to confess to being more ambivalent about that point and I am not alone. A recent poll by IPSOS Mori found that only 11% of Brits think the economy will have recovered next year, the lowest of any OECD economy. Thank goodness that we have such a productive and innovative private sector, capable of getting things moving.

In structure, ETCA loosely emulates the Norwegian pillar of the European Economic Agreement: collaborative access to the single market on a zero quota, zero tariff basis as long as we go along, broadly, with the rules, including in relation to the environment, labour relations and state aid. If we don’t and there is a disagreement, there will be an arbitration procedure which may culminate in that area of the agreement being “rebalanced” and tariffs imposed.

The situation is vaguer for financial services. By March 2021, the two sides intend to negotiate a memorandum of understanding for regulatory co-operation in financial services to be accompanied by, “equivalence decisions” with the EU. In the meantime, most City firms have set up branches or subsidiaries in the EU to enable business to flow.

In return for these looser arrangements, including an end to freedom of movement, we have given up certain things. The first is to participate in EU rule-making and the second, the superior protection of the Court of the European Free Trade Association, where judges are nominated exclusively by the EFTA members like Norway and Iceland. The EU-UK tribunal is more ad-hoc, as in a traditional international agreement. The tribunal’s members will be split into three with a third comprising  EU judges or equivalent, some of whom will no doubt be connected to the European Court of Justice; the second third will be from the UK and the final third will be independent.

However, these and other flaws, such as the uncertainty about Gibraltar’s status, are mere details compared to the really big point: we have a comprehensive agreement with the EU which should give us amicable access to each other’s markets and engender a spirit of co-operation and mutuality, while also disembarking us from the runaway train of “ever closer Union” enshrined in the Treaty of Rome. Businesses and individuals are inventive and adaptable. Goodwill, workarounds, technology and good custom and practice should help mitigate or overcome any shortcomings.

The UK Parliament will ratify the deal in the next few days. The EU process will take until mid-February. That might prove to be more difficult as the explicit purpose of the European Parliament is to replace a “Europe of nations” with something new. It is a draft treaty and MEPs and EU member states might demand additional clauses, perhaps in relation to governance, to be re-presented to the British.

Assuming that the ratification process goes according to plan, the resulting certainty over the biggest legal and commercial issue facing the British economy for several decades, should finally enable investors and businesses to put substantial amounts of money to work here. For nearly five years, business investment has been flatlining, even retail investors (many of whom presumably voted for Brexit) have been withdrawing money and investing in global opportunities. The FTSE 100 has been the worst performing global stock index.

The amount of money that may potentially be deployed into the UK is truly gargantuan. According to Bank of America, global fund managers are a record “underweight” of the UK in their portfolios. Vast sums of money have been printed and borrowed by Central Banks and Governments, including by our own. Much of it is sitting in bank accounts, earning pitiful interest or held in cash or near cash of one kind or another by both businesses and households in the UK and elsewhere.

Before we get too carried away, what are the risks to this rosy scenario? Leaving aside the ongoing virus (where we must hope the vaccines work their magic), there are two.

The first is our old friend inflation, dormant since the 1980s. It stands to reason that when large parts of the economy are subject to legal restrictions and are idled, turning on the money geyser will cause a surge in prices. Unless the Government can move fast to get Covid under control, to open up the economy and also to create the appropriate structures for money to be invested by the private sector into new assets and opportunities (such as infrastructure and flotations of companies on the London Stock Exchange) the great flood of money will be wasted in pointless speculation in, say, house prices and consumption.

The consequent inflation could only be arrested by a sudden rise in interest rates, turning the Brexit boom to bust.

The second risk is something more subtle: the need for a process of economic and institutional reform which restores orderly, reasonable law and decision-making and efficiency to the British state. The worry is that, despite all the rhetoric about “global Britain” and trade secretary Liz Truss signing free trade deals at a heroic pace, the Conservative Party has apparently lost the moderate, practical, business-minded, Scottish Enlightenment mindset of Pitt, Peel, Thatcher and Blair and instead embraced a sort of madcap nationalist and socialist thinking, which I (ironically) call “NatSoc economics”.  Let us hope this is temporary.

If our future is really to be found not in the stars, but in ourselves, we must, as a country, start by rediscovering established commercial principles.



We all fall down, then get up again

Helpful lessons from the plague of 1665.

Sometimes history can take us out of ourselves and put the present in perspective.

It is hard not to be very worried about where Britain is headed as a country after arguably 20 years of catastrophic mistakes by a succession of administrations, including this one led by Boris Johnson.

But rather than dwell on that obvious and gloomy point, which I am sure most sensible people (and investors) are coming to share, let us swivel our gaze back 350 years to the parish records of London for inspiration.

There we can find data which demonstrates that terrible things pass, life changes and an orderly democratic society is usually self-correcting.

Thomas Cromwell, that effective man of business for Henry VIII, introduced compulsory birth, deaths and marriage registers for every parish in 1538. Lord Burleigh tightened the rules in 1597, appointing Diocesan registrars to inspect the accuracy of the books, and in 1653 in an Act Touching Marriages and the Registering thereof; and also touching Births and Burials, Oliver Cromwell put the system on a statutory footing, overseen by Magistrates.

From this accurate data (reproduced by the Wellcome Trust), here is what we learn of the progress of the Plague of 1665-6. It began in May, it peaked over the summer, there was a second (but much lower) peak, but by the following February it was deemed safe enough for the court to return to Westminster.


The progress of the disease is gruesomely narrated by Samuel Pepys, in his diary. Interestingly, periwigs were deemed to be a source of transmission and wig manufacturers’ sales collapsed.

What are the lessons we are hesitantly to deduce from this evidence?

First, that even the most deadly viruses work their way through populations and at some point, everybody who is likely to get infected and, sadly, to die, will have done so.

Second, accurate detailed, local data – of which there was almost none at the press conference by the medical and scientific advisers this week (coincidentally timed to overshadow the online Labour conference) – is imperative to monitoring progress.

Third, orderly democratic law-making is a vital institutional underpinning of any successful society. That, currently, is suspended in Britain and needs to be restored.

Finally, the 1665 plague together with losses in a silly war with the Dutch, provided the backdrop to the fall of Charles II’s Lord Chancellor, the Earl of Clarendon. He did not get it himself but became seriously ill with gout and was deemed to be an increasingly incompetent liability. In 1667, he was impeached for breaching Habeus Corpus by sending prisoners out of the country to Jersey without trial, in violation of long-established law. In his prime, Clarendon had been brilliant and helped orchestrate the Restoration, but by the end it was King Charles II himself who signed his banishment.

Common sense is back in fashion

Common sense. Suddenly, there is apparently a lot of it about. People should, “use their common sense,” suggests the Prime Minister, before publishing 50 pages of rules and advice on easing the lockdown which sometimes lack that quality, especially in relation to schools and travel.

Perhaps Boris Johnson is simply reflecting back at the public what they have already decided for themselves. At least, that is what a Surrey plumber told a reporter on Channel 4 news: “I don’t think it is complicated. Just be sensible. What do you want? A handbook telling you what to do?”

For those of us who have believed all along that, with the right regulatory, institutional and fiscal framework, society has a bias towards behaving and growing responsibly, this is to be welcomed. The penny may at last have dropped in Westminster.

By coincidence, an American academic called Robert Curry has just published a book called Reclaiming Common Sense. He argues that common sense is the acceptance of certain, “self-evident truths,” which enable us to acquire knowledge and skills and make moral judgements on the basis of experience. He regrets what he sees as an assault by intellectuals and bureaucrats on this tried and tested philosophy.

Too many political types have also jettisoned common sense in recent years, to replace it with endless polling and intrigue. Policies which, based on experience, actually work do not always feature in their calculations. This partly explains recent Prime Ministers repeatedly ending in failure, despite gaining office with strong mandates.

The Founding Fathers

Common sense realism was the creed of the American Founding Fathers, who had picked it up from the philosophers of the Scottish Enlightenment. Curry quotes Thomas Reid, who wrote in An Inquiry Into The Human Mind And The Principles of Common Sense of, “certain principles which the constitution of our nature leads us to believe, and which we are under a necessity to take for granted in the common concerns of life, without being able to give a reason for them, they are what we call the principles of common sense.”

Reid had a profound influence on Thomas Paine, whose bestselling book Common Sense sparked an urgent questioning of the hierarchical status quo that British rule had inflicted on the American states. His words helped fuel the drive to independence.

Jane Austen

Interestingly, Curry claims Reid also influenced the novels of Jane Austen. In Sense and Sensibility the two Dashwood sisters embody the twin themes of the book. Marianne falls deeply in love with a bounder called Willoughby. Elinor remarks of Marianne, that “in a few years she will settle her opinions on the basis of observation and common sense.”

Marianne’s opinions are, “all romantic” and Elinor asserts the importance of prudence, fortitude, justice and temperance, echoing the common sense virtues of, “piety, patriotism, friendship, parental affection, and private virtue,” advocated by Reid. Jane Austen’s novels also demonstrate that she understood the related virtues of thrift and industry, but that is another story.

Method and moderation

To these we must also add scientific method, in other words, proceeding not just on the basis of observation of the evidence, but also learning by testing hypotheses and admitting our mistakes. This is how engineers, doctors, craftsmen and good tradespeople advance. Moderation also has its place, as does its cousin, irony. Humour, I read somewhere, is common sense on speed. The failure to realise this is where ideologues, and many voluble advocates of common sense themselves, have fallen down.

Ironically, Thomas Paine, the self-confessed apostle of common sense, ended up having a furious pamphlet war with Edmund Burke, wrongly championing the French Revolution well after it descended into extremism and violence, as Burke had warned. Paine ended up in prison in France. That is the thing with common sense. A wise person recommends its benefits lightly, rather than asserting volubly that they alone have it, while everybody else is unfortunately born with one screw loose.



Maple syrup: a 10 point guide to Boris Johnson’s Canada-style EU free trade proposal

I popped along yesterday morning to the splendid Painted Hall in Greenwich (above) – itself a painterly encomium to institutional innovation and commerce – to hear the Prime Minister’s bombastic and entertaining enthusiasm for free trade and a Canada-style free trade deal with the EU.

The Cabinet in attendance rose as one to give a stirring standing ovation to their Leader, but the media, not so much. What followed was a load of dreary questions which demonstrated that the press knows almost nothing about the so-called CETA (Comprehensive Economic and Trade Agreement) with the EU. As I expect they are not alone, and also I believe I was the first person to raise the potential of CETA publicly in an article in The Times in 2016, please see my very humble and brief attempt to address this deficit:

1. Purpose

The purpose of CETA is to encourage foreign investment, to remove all tariffs on industrial goods and to progressively liberalise trade in agriculture and services. The agreement summary says: “Overall, the tariffs for 98.6% of all Canadian tariff lines and 98.7% of all EU tariff lines will ultimately be fully eliminated. This will happen at entry for 98.2% of the Canadian tariff lines and for 97.7% of the EU tariff lines. All other products identified for liberalisation will have their tariffs brought to zero within 3, 5 or 7 years.”

2. Financial services

You will hear from some quarters that CETA “doesn’t cover financial services”. This is rubbish. They have a whole section, Chapter 13. This essentially sets up an equivalence and/or mutual recognition regime. It says that “each Party shall permit a crossborder financial service supplier of the other Party, on request or notification to the relevant regulator, where required, to supply a financial service”.

3. Other services

The agreement supports the opening up of services such as maritime, telecoms and postal services, which are subject to a “negative listing process”, ie they have to be actively excluded. Presumably, this means very little change from now.

4. Professional qualifications

The agreement creates a process of mutual recognition for doctors, architects etc. Though I have noticed, for instance a renewed French hostility to British ski-instructors, partly because French ski instructors have a very rigorous qualification programme. One suspects a handful of professions might face a little more discrimination than now.

5. Regulatory co-operation

You will hear from some Brexiteers that “we won’t be rule takers from Brussels”. They are, to a degree, set to be disappointed. The CETA agreement specifically encourages regulatory convergence and compatibility via a Regulatory Co-operation Forum. When the Prime Minister says “no alignment”, what I assume he is talking about is not being automatically forced to adopt EU rules. In reality, most of our rules, especially in goods, will be the same or similar, but we will have more wiggle room than members of the EU. I have to be honest, I myself find this “rule-taking” rhetoric very boring and largely irrelevant.

6. State aid rules and competition policy

State aid is hardly mentioned in the agreement and is effectively covered by the duties of non-discrimination towards investors. Perhaps the Government would have greater freedom to bail out defunct airlines and steelmakers. However, competition policy is covered in Chapter 17. While this is a relatively brief section, the general duties to “recognise undistorted competition” and “to proscribe anti-competitive business conduct”, suggest no meaningful change to legislation in that area.

7. Lots and lots and lots of Committees

The agreement is governed by a Joint Committee, co-chaired by the Minister for Trade and the EU’s trade commissioner. They have the power to interpret the agreement and also to create new rules and processes. In turn, the Joint Committee appoints numerous other committees covering everything from financial services to copyright protection, which in turn make the rules and processes within the agreement.

8. Tribunals

If there is a disagreement, including one brought by a private sector entity, there are tribunals to settle the dispute. The Investor State Dispute Settlement (ISDS) tribunal is made up of five judges from each side and five from third party countries, who convene in specialist committees. Their job is to protect investor interests and this has proved highly controversial in left-wing circles. It is the reason that the implementation of CETA got held up and it is a continued source of grievance mentioned by French ­Gilets Jaunes protestors and NGOs.

Other tribunals may also be set up by the Joint Committee.

If the passage of CETA is anything to go by, expect there to be a row about the tribunals, including from the EU-side.

9. Ratification/agreement

The CETA agreement affects both nation state and European Union issues. It is consequently what is known as a “mixed agreement”, meaning it has to be ratified by both the EU itself and the 26 nation state members. There is provision for it to be implemented provisionally, but one risk is a small nation, such as the Republic of Ireland, blocking things up.

Another point to have in mind is that the CETA agreement is 1600 pages long and took six years to agree. In theory, the parties need do no more than find and replace the word “Canada” with the words “United Kingdom”. But I bet they don’t.

10. No Deal

What happens if no text has been agreed by December 31st? Will Britain tumble into an Australian-style relationship with the EU? Personally, I doubt it. Both sides have already committed to heads of terms via the Political Declaration. Every time No Deal comes up, both sides back down. Far more likely is a series of sector-based deals, with roll-overs for areas which are still to be agreed. In the meantime, there will be much posturing and tub-thumping from both sides.


In the end, trade and commerce are private sector phenomena, arising from fundamental human concepts such as consumer demand, mutual interest and comparative advantage. The role of Governments and regulators is to create the framework to enable this to happen and to enforce standards. But in the modern era, governed as it is by the General Agreement on Tariff and Trade, even if states cannot reach full agreement it will not mean everything grinds to a halt. Firms and individuals will adapt.

There are thousands of small, detailed items to be sorted in our future relationship with the EU. But it will prove to be a dynamic process and unless something specifically affects your industry, then the best advice may be to ignore most of the negativity in the media and elsewhere and to get on with the business of a flourishing life.




The Establishment is having an optimism reshuffle

All change at the BBC, the FT and the Sunday Times

For me, there have been two notable cultural trends of the last three years in the West. First, a howling negativity emanating from what one might describe as the bourgeois intelligentsia; and second, the traditional Establishment being stuck like rabbits in the headlights, panicking and not knowing what to do.

One can blame this on Brexit and the election of Donald Trump or Greta Thunberg. But it goes much deeper than individuals and traces its roots to the financial crisis, the rise of social media and too many highly indebted people at university, to name a few.

Is all this suddenly changing?

Pessimism is so 2019

Daniel Hannan, the retiring Conservative MEP and Telegraph columnist, quoted the historian Lord Macaulay the other day at his leaving-do. “On what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?” Pessimism is not new, but progress is the way to bet.

I was struck also by an interview on the BBC Radio 4 Today programme this morning with Professor Sophie Scott, director of the Institute of Cognitive Neuroscience at University College London and Professor Julia Lohmann, a Finnish academic who also runs a design practice called the Department of Seaweed, which develops emissions and toxin absorbing seaweed products.

Professor Scott reminded us all that humankind are social primates, and “People change more frequently if you engage them in a positive way. Our social interactions matter.” You can listen here, at 2hr 55 mins (just after a piece on the perils of Coronavirus) LINK

Adam Smith

This should not be a surprise to followers of Adam Smith, whose Theory of Moral Sentiments is built upon exactly that insight. Man is essentially a collaborative animal and “we shudder and tremble” at what “our brother feels upon the rack”. Negativity and hysteria are usually overdone and unhelpful, if not psychologically damaging, and certainly harm relationships and the ability to co-operate.

Democratic societies, which are necessarily discursive, do not usually run off cliffs. Occasionally, one has a calamitous 1914 cliff-running situation, but even those just serve to reinforce social dynamics of positive behaviour and spontaneous organisation. Usually, in a dynamic society, if we see a threat or challenge we collectively organise to do something about it, after first making a mess and fuss over things.

All change

Which leads us to my next observation. After three years of stasis, the Establishment is having a major reshuffle. In the space of a few days we have a new editor of the Financial Times, a new editor of the Sunday Times, a search for a new BBC director general and for the CEO of Sainsbury’s and for a director at the Office of Budget Responsibility, and a new interim head of the Financial Conduct Authority. Expect this to gain further momentum with the imminent Cabinet reshuffle and a new Labour leader.

What will be the collective ethos of these new leaders? Will they wag their fingers disapprovingly at us and teach us we are all doomed due to the climate emergency and a plague from China? Or embrace a more optimistic, practical style and philosophy? Optimism v Pessimism currently is a great dividing line in society but empirical observation suggests that, in the long term, sensible people should be cautiously optimistic.



Theresa May is a genius – discuss?

There, that has caught your eye.

We are accustomed to thinking that Brexit has degenerated into a shambles and Mrs May’s strategy of “kicking the can down the road” has been a disastrous humiliation. That is certainly a valid point of view. But from her own narrow self-interested perspective she remains in Downing Street and has avoided taking any of the many final decisions which might coalesce opposition to her.

That strategy marked up another success overnight when the European Council agreed an Article 50 extension until October 31st.

At Boscobel we have continuously resisted the Government’s claim that the country faced a binary choice of Theresa May’s deal or No Deal, as we believed Parliament would approve neither. That continues to be our advice.

A leadership contest?

This morning, the Today Programme was full of disinterested speculation that Mrs May will now be “forced to step down”. That is a possibility. But the fact is there is no legal or constitutional mechanism to remove her from office in the short term. And unlike most politicians she seems utterly immune to the daily hue and cry of the media, Parliament or indeed other people’s views and feelings generally.

She has particular contempt for Cabinet government, one of the many important constitutional conventions our politicians have undermined in recent years. That said, given that at least five of her colleagues now have leadership campaigns up and running, she can enter a plea in mitigation.

Investor confidence

From an investor perspective, last night’s European Council decision has its merits. There is a huge amount of deferred investment, pent up in the system. There were only three IPOS on the London Stock Exchange in the first quarter, the lowest number since the financial crisis. UK companies are holding a record 35% of GDP in cash on their balance sheets.

For managers and investors with capital to allocate and who can ignore the media, the Brexit pause should be an opportunity to make incremental decisions. Very large decisions may still be put off, as the acute political uncertainty around the UK will continue.

What is the medium term outlook?

  • The UK will almost certainly participate in the European Parliamentary elections, with candidates to be selected in the next couple of weeks. The polls suggest this will be a disaster for the Conservatives.
  • The franchise could be critical, as EU citizens resident in the UK will be entitled to vote. They have been treated appallingly by the political and bureaucratic process and are difficult to poll. One suspects, without evidence, they will vote for remain parties such as ChangeUK.
  • Relative to the hard core Remainers, at the top of which sit the eminence grises of New Labour, notably Tony Blair, the Brexiteers (especially the European Research Group in Parliament) are in disarray.
  • Experience of life suggests the longer and more frequently something big is delayed, the more likely it is to lose momentum altogether. We should start to contemplate the possibility that Brexit may never happen, or not unless the mandate is refreshed by a Second Referendum.

In EFTA, it would be in a working free trade agreement, but outside the jurisdiction of the European Court of Justice, the Common Agricultural Policy, the Fisheries Policy and the Customs Union. We would enjoy rights of consultation and veto over new laws, as they applied to us.

At Boscobel, we have supported a campaign for the so-called Norway solution. It is now commonplace in Parliament that there are, in fact, two pillars of European treaties, holding up a common-roof called the European Economic Area. The EU political treaties make up one pillar, but there is another made up of the European Free Trade Association. It still makes sense for the UK to leave the political institutions of the EU and move into EFTA.

For this policy to work it would require something to shift. But that tinkling sound you can hear is just the can being kicked down the road. Again.

Get ready for the new EU Shareholder Rights Directive

The EU Shareholder Rights Directive II (updating a 2007 original) comes into force in June 2019. This is potentially one of the biggest and most positive developments in corporate governance across Europe, including for London listed companies, for many years. It will occur whatever happens with Brexit because the UK has already agreed to it. Yet it has attracted remarkably little attention.

The full text can be read HERE

The Directive is intended to ensure shareholders can exercise their rights across the EU and for the most part, under the UK Corporate Governance code and the Listing Rules, we are already compliant. For instance, UK companies are already obliged to offer an annual vote on executive remuneration.

However, in two notable areas UK companies, brokers, custodians, asset managers and advisers are going to have to ensure they are up to speed and, in many cases, improving their practice. Both have implications from a financial PR perspective.

Intermediaries must enable shareholder rights, even for retail shareholders

All market intermediaries, including those who distribute shares to retail investors during a capital raise such as an IPO, are going to have to ensure that they pass both rights and information properly and in a timely manner between companies and shareholders.

Most intermediaries will claim they already do that and the S.783 of the Companies Act means shareholders can already be identified.

However, having worked for companies during contested situations, such as proxy fights, controversial general meetings or M&A, it would seem there is still plenty of inertia in the system when it comes to discovering who is the underlying owner of shares, whether they or someone else can exercise voting rights, how they intend to vote (if at all) and whether they have the correct information.

There can be numerous complications. Are shares out on loan? Is it a cross border situation? Are retail shareholders involved? Do hedge funds have voting rights or not? Having established the owner, who decides how to vote?

In theory the Shareholder Rights Directive clears that inertia in the system away. In so doing, it also paves the way for using distributed ledger technology to manage both ownership data and the exercise of shareholder rights.

The Directive says that intermediaries in Third Countries (outside the EU), such as the Cayman Islands or the British Virgin Islands, must also comply if they hold European listed shares (though it is not clear how that will be enforced).

Related to that, companies and intermediaries have frequently been neglectful of retail shareholders, usually arguing that as they hold their shares via nominee accounts, ensuring they have information and can vote is too difficult. That is likely to change. Given the growing importance of retail shareholders and platforms such as Hargreaves Lansdown in capital raises for small and medium sized companies, this is an important new development.

Large companies with big retail or employee shareholder bases, such as Centrica, BT, Royal Mail and Santander may also have to strengthen their efforts at enabling them to vote at AGMs.
Asset managers, institutions and proxy advisers will have to be transparent

The Directive creates a new “comply or explain” duty on asset managers and institutions to explain publicly their approach to shareholder engagement, including their approach to ESG (environmental, social and governance issues) and how they have voted. It explicitly references the UN Principles of Responsible Investment. Many investors already do this – and the UK Stewardship Code is already on a comply or explain basis – but it is another step in the move towards voting transparency and institutional accountability.

Proxy advisers will also have to adopt a public code of conduct and report on it. Given the variable standards in this industry, this is no bad thing.

Financial PR implications

The most obvious implication of the Directive is that, during a contested situation, it is going to be easier for the parties to establish who the shareholders are, to ensure that they have voted and to influence them, either via the media or directly.

This should enhance the dialogue between corporates and their investors. It will also mean that activists will potentially find it easier to communicate with other investors. Equally, they will find it harder to exaggerate their voting power.

The Boscobel view is that the lost Unilever redomicile vote in 2018 was a watershed in shareholder democracy, because it demonstrated how corporates can pay a heavy price for becoming disconnected from their owners. Corporate knowledge of shareholder registers and shareholder sentiment is often out of date or partial. The management of the register can sit awkwardly between the Company Secretary, investor relations and the house brokers with proxy advisers only brought in on an ad hoc basis (often when it is too late).

Asset managers and institutions must also ready themselves for continued demands for public transparency on how they have voted and why.

Ahead of the Directive coming into force, corporates should look to re-evaluate their shareholder communications to ensure compliance. Financial PR sits at the heart of this process, providing advice on best practice as well as anticipating issues (which may anyway first surface in the media) and pre-empting them with transparent and concise communications.

It is official – Brexit squabbling is damaging the economy

The British economy is slowing. There. I have said it. After repeatedly writing upbeat pieces for CapX to counter the doom and gloom mongers in the last two years, the facts are changing and so is my mind.

I would go further and say that the weakness of the economy, much of it Brexit-related, is going to put the skids under the tedious stasis which passes for political activity in Westminster these days. Voters are going to be cross.

Extreme Remainers and Brexiteers in Parliament better watch out in case they get the blame. And horror of horrors, Jeremy Corbyn’s claim that there is something fundamentally wrong with the way the economy is managed might yet land on fertile ground.

The full article was published on CapX and is available to read at this link.

It is 1956 and all that again in Westminster

The Establishment may be having a wobble, but things could be much worse

It hasn’t been this bad since the Suez Crisis. That is what some are saying in Westminster. What we still call the Establishment is divided and demoralised, awaiting “clarity” on Brexit. Britain is arguably involved in another international escapade which is being executed incompetently and with insufficient vigour or realism.

There are those who hope, somewhat ungallantly, that the Prime Minister might resign due to ill health, like her predecessor Sir Anthony Eden after the botched Anglo-French-Israeli attempt to reclaim the Suez Canal. The papers are full of treacherous speculation.

As in 1956 those in positions of leadership in politics, in business and even charities are doubly nervous because of changes in the media. They have some sympathy for Theresa May. Who will the media mob turn on next, they ask? Today, it is social media; in 1950s it was television.

Eden was overwhelmed by a censorious global media firestorm. According to the UN, by 1960 there were 56m television sets in the United States and 11m in the United Kingdom, twice the number five years before. The end of Empire was broadcast live on the CBS Evening News and at home on ITN and on BBC News.

60 Tory rebels
In the 1950s, a group of some 60 Tory backbenchers called the Suez Group (sound familiar?), was founded, whose activities were animated when Britain negotiated a withdrawal from the international Canal Zone, which the British Government part-owned and administered.

Eden has since been represented as an Imperial dinosaur, but actually his policy was organised withdrawal from Empire, leaving behind a string of bases (including in Suez), some hopefully friendly governments and that amorphous thing traditionally prized above all else by the British Establishment: “influence”.

But Eden was at the beck and call of the Suez Group, and Sir Winston Churchill, who made way for him as Prime Minister in 1955, was their idol. As ever, Churchill’s policy was to never to surrender. On the other side was the pro-Soviet and anti-Western President Nasser of Egypt who nationalised the Suez Canal in July 1956. There was widespread indignation in Britain and in France and a fear that trade with Asia would be cut off.

The role of the media was to argue for resolute action when the Suez Canal was nationalised, but as the affair unfolded it dramatically turned on the Government until only the Daily Express (circulation, 4 million copies a day) supported Eden.

The Treasury and the Bank of England don’t like it
The Treasury and the Bank of England were both against military action by Britain and France without American support. Although the economy was recovering from the war and unemployment was at a record low, the pound was fixed to the dollar at $2.80. The fear was it would not survive a speculative attack.

The economic situation was exacerbated by the fact that half our oil supplies came through the Suez Canal (as did much of our goods trade). Traffic was blocked and the oil price went through the roof. Petrol rationing was introduced. Many ex-colonial countries and corporates had sterling deposits which they began to withdraw from London and soon the Bank of England’s foreign exchange reserves started to dwindle.

The IMF found a role
The International Monetary Fund likes to claim that Autumn 1956 was its baptism of fire, the first time it provided emergency lending. Initially, the Americans (who had always opposed colonialism and saw the British and French as playing into Russian hands) blocked a loan to support sterling. This was the proximate reason why Britain and France halted military action in November 1956. They had sent their air forces, a naval task force and paratroopers to the Canal, supposedly to prevent Israel and Egypt from fighting each other. This was a ruse.

Gaitskell was no Corbyn
However, the comparison between now and 1956 has its limits and should not be taken too far. Eden had in fact just won an election the previous year handsomely, with a majority of 60 seats and a majority of the popular vote. A change of party leader did not bring with it the risk of a collapse of the Government and letting in a Jeremy Corbyn-style figure. The Labour leader was Hugh Gaitskell, a charismatic moderate who played both the press and international opinion skilfully.

The stakes are much smaller now too. Eden lying to Parliament about the covert agreement with France and Israel to intervene is surely worse in magnitude than the infamous “£350m for the NHS” claim. No military action is in prospect today; nor isolation at the United Nations; nor a bailout from the IMF. And President Trump publicly supports Brexit, whereas Eisenhower opposed the Suez campaign. In other words, this time round a sensible outcome should theoretically be possible to negotiate, at some point, as long as we take a global approach and work to keep international opinion on side (not much sign of that).

Markets don’t like weak governments
That said, the parallels are instructive. Markets do not like weak governments and it is noticeable that the Government’s recent travails have left the FTSE 100 underperforming global markets. It is also remarkable that the British economy has so far withstood the constantly negative outpourings of the financial press, business lobby groups etc. One wonders how long it can do so. The construction industry PMI, for instance, last month showed activity is flatlining and new housebuilding has gone off a cliff.

As 1956 turned to 1957, the front runner to replace Eden was actually RAB Butler. But Harold Macmillan, the cunning chancellor, was the person who was surprisingly supported by most of his colleagues to be Prime Minister. Macmillan had been pro-military action but then changed his mind after the Americans failed to support it.

Who is Macmillan now? My guess, for what it is worth, is Michael Gove. He may be the Harold Macmillan of Brexit, the only man with the attention to detail and ability to appeal to both sides of the Conservative party.

A diplomatic resignation
Macmillan had a reputation for deviousness and subsequently noted that if Eden had not resigned due to ill health, a “diplomatic resignation” might have been required.

A “Theresa May resigns through ill-health” scenario might be cowardly, but it is convenient for some. A resignation on health grounds, accompanied by some liberal dollops of spin and hypocrisy, would avoid a vote of no confidence among Conservative MPs. A prolonged leadership election in which Tory members can vote might also be avoided, to be replaced by a coronation. There is one issue: public support for Mrs May is deeper outside the Westminster bubble than inside it. Sometimes it seems her critics, rather than she, are having a wobble.

Macmillan leads a recovery
Macmillan actually recovered well from the Suez debacle. Perhaps helped by a positive relationship with President John F Kennedy, he adapted to the requirements of television. He actually accelerated the withdrawal from Empire and ostentatiously ordered the Polaris independent nuclear deterrent. He rebuilt the “special relationship” with America. He went on to win the 1959 election with a 100 seat majority accompanied by the soundbite “we have never had it so good”, before coming unstuck himself four years later.

Until the Vietnam War and oil crises threw the West off course, the 1960s were a time of relative social and economic idyll. Macmillan re-oriented Britain towards membership of the European Economic Community – at the time, a trade partnership – as a new anchor for British foreign policy. Which takes us back to where we are today. Who has the strength and vision to re-anchor Britain now? We will have to wait and see and in the meantime console ourselves with the ultimate lesson from the Suez Crisis: things could be a whole lot worse.

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