St Paul's Institute

Companies and Companionship

by Richard Ellis

Posted: 20 Feb 2018

London is a city of companies.

There are the livery companies, whose halls are dotted across the Square Mile. There are the theatre companies, whose plays delight audiences in Covent Garden. There is the Honourable Artillery Company, whose soldiers enjoy the privilege of marching through the City "with drums beating, colours flying and bayonets fixed." 

Though different in many respects, these organisations remain true to the original idea of what a "company" should be. The word ultimately derives from two Latin words: com meaning with and panis meaning bread. An important element of an original company was that its members should break bread together. Sharing meals helped engender the fellowship (the companionship) on which the company depended for its success. Livery companies, theatre companies and the Honourable Artillery Company all, in their different ways, remain true to the spirit of this heritage.

What about that other famous collection of London companies  -  the public limited companies (PLCs), whose share are traded on the London Stock Exchange? Here the picture is less rosy.

Companionship and sharing are not the words that spring most readily to mind when people think about the United Kingdom's PLCs. Rapacious and self-indulgent would be nearer the mark. Big business in this country has a bad reputation.

People too often think of overpaid bosses, underpaid staff and poorly-treated consumers. Corporate Britain is seen as a law unto itself. Directors of loss-making companies award themselves bumper bonuses. Large businesses decide for themselves whether they will pay any tax. Big business is thought to be part of an international elite that is both out for itself and out of control.

This reputation is unfair to the large number of PLCs that are exceptionally well-run; but it is not without a kernel of truth. Big business (of which PLCs and their subsidiaries are a considerable part) has gone badly wrong. Failures of corporate governance have left Britain's PLCs without the discipline and support that they require if they are to thrive. This would be dangerous at any time but, as we gear up for the challenges and opportunities of Brexit, it takes on a vital importance.

This article will explore some of the ways in which we have gone wrong in our national approach to big business and it will set out some of the ways in which we can put our PLCs back on track.


British companies

The first stage is to realise that the United Kingdom's PLCs are British companies in the truest sense of the term. They belong, to a very considerable degree, to the British people.

The "P" in PLC stands for "Public". That public means, in part, "us". Relatively few of us hold PLC shares in our own right but our pension funds, our investment firms, our insurers, our faith organisations and our Government all do. Crucially, these organisations hold their shares on our behalf. Admittedly Britain's PLCs have large numbers of foreign shareholders but the British people still ultimately own 46% of quoted shares in UK domiciled companies. While we do not quite own the majority of interests in these shares, we do own enough to have influence. Britain's PLC are, to a very significant extent, ours.

If we have concerns about corporate governance, therefore, we would do well to consider the quality of our performance as company owners. This essay sets out some ways in which we might start to do so.


Clumsy capitalists

One of the underlying assumptions of capitalism is that corporate owners will be dedicated to the pursuit of profit. The idea is that shareholders want to receive the biggest possible capital growth and dividends and that they therefore have a narrow focus on the bottom line. They will cut costs, eradicate waste and screw the maximum possible return out of the companies that they own. That, at least, is the theory. What if the owners cannot be bothered?

What if owners never trouble themselves to check whether the company's money is being well spent? What if they never take a proper look at the accounts? What if they allow employees to set their own pay and conditions? Welcome to Britain's PLCs.



It is a sad statement to make in what is still a great trading nation, but we have been just about the feeblest owners in the history of capitalism. We have failed to instil the requisite level of discipline in the management of our major companies.

An interesting parallel between PLCs and the public sector is the spending of other people's money. In private companies the people at the top keep a close eye on budgets; this pressure is often much less in the public sector and in PLCs. The fact that an organisation's owners are less involved means that shareholders are reliant on management to exercise discipline. Sometimes management gets things badly wrong. We only tend to hear about this in the event of major corporate failures, such as those involving Northern Rock, Woolworths and Carillion. Anecdotal evidence, however, suggests that poor management more generally is far from unknown in big business. Wasteful spending ranges from relatively minor matters, such as failure to scrutinise expenses, to the larger costs associated with over-running capital projects. This, at least in part, is our fault. After all, if we do not protect our interests, who will?

Business-minded judgment

The lack of discipline is most clearly evident with regard to executive pay. Directors at Britain's PLCs over recent years have seen their total remuneration balloon at a rate of 7% per year. It is hard to believe that this represents money well-spent. Before leaping to outrage, however, it is worth considering this point with some care and in the light of business-minded analysis.

These directors are, after all, running our companies. We want our companies to be run by the best possible people. Inevitably, therefore, we will have to pay large salaries. It may be tempting to impose an arbitrary cap on executive pay but, if that prevents us from hiring the highest quality people to manage our businesses, then we will be the ultimate losers. Top people's pay packets may well need to be cut in many cases but we must approach the exercise with commercial good sense. Just by way of example, large portions of directors' pay packets should be conditional on achieving specific, and stretching, targets. Such an approach would allow us to give our companies the support that they need.


Supporting our companies is, after all, a vital part of our role as corporate owners.

We want our companies to thrive. We want them to employ, to export and to grow. We therefore want them to have the ideal environment in which to operate. This may mean that we need to press for certain regulatory changes or tax reforms. It may mean that the Government's approach to skills and training needs to change or that we need to work on getting greater access to foreign markets. As responsible owners, we could look to help our companies in all these areas. The difficulty is that we do not necessarily know what help they require or what levers of change to apply.


Change of tack - Parliament, Press, Public

We therefore need to change our approach to our PLCs. We need to have a system whereby (i) we can exert some influence on what our companies are doing, and (ii) we can find out what it is that our companies need so that we can help them to get it. This new system needs to reconnect the indirect owners with the pension funds, insurers etc, who have used our money to buy the PLC shares that they hold on our behalf.

The best way of doing this would be to set up a parliamentary committee (the PLC Committee) to hold our institutional investors to account. It should ask the pension funds what they have done about PLC executive pay. It should ask the insurers how they are monitoring PLC procurement. It should ask investment funds what they have done to assess the quality of long-term decision-making by PLC boards. The PLC Committee should also, moreover, ask these institutional investors what legal or political changes need to be made if PLCs are to thrive. Are there regulations that need to be repealed? Does this country have the right skills base? Are any foreign markets proving particularly difficult to enter? Some of this information may already be in the public domain but the PLC Committee should be able to develop a better understanding of priorities and context across PLCs as a whole.

While the PLC Committee should deal with each large investor individually, it should also encourage those investors to work together. The most important collections of institutional investors (the Investment Management Association, the Association of British Insurers and the National Association of Pension Funds) have already joined forces in the Institutional Investor Committee. This is an important step. The Investors Forum is another good example of this. These investors will have much more clout if they can act together and they should be encouraged to join forces more frequently. The PLC Committee could play in important role in making sure that the organisations such as the Institutional Investor Committee and the Investors Forum achieve their potential and that the impetus behind them does not slack.

The activity of the PLC Committee should provide good material for the media and, therefore, for public debate. Ideally people should come to feel as strongly about the profitability of our PLCs as they do about the soundness of our education system. As that begins to happen we can hope to see public petitions and campaigns designed to influence the operating of our PLCs. If this is conducted, as there is every reason to expect that it will be, in the spirit of business-minded common sense described above then we can hope for some very positive outcomes.


International aspects

As we have seen, large numbers of PLC shares are owned by overseas investors. Such investors would not be part of the formal architecture of these proposals but they may wish to make their own representations to the PLC Committee (and to PLC boards directly) and there is no reason why such representations should not be welcome. The fact that British shareholders are taking united action to make their voices heard need not worry foreign investors. The ultimate aim of these reforms, after all, is to make sure that PLCs thrive and that PLC owners enjoy capital growth and dividends. That is good news for all PLC shareholders - British and overseas alike.



Capitalism has been the subject of much discussion of late. In the aftermath of the 2008 financial crisis there has, rightly, been a good deal of focus on its weaknesses. Added to this, concerns about inequality in British society have prompted questions about whether capitalism's benefits are being fairly shared. One aspect of this issue is that younger generations are less able to acquire capital and therefore less inclined to favour capitalism. More broadly, too many people feel locked out of important discussions about industrial strategy and corporate decision-making. People are concerned that too many of these decisions are taken based on what would suit PLC directors rather than what might be in the best long-term interests of the country and its economy. The best response to this is to demonstrate that we all share indirect ownership of Britain's PLCs and that this gives us a stake in (and a say over) some of the most important components of our economy. Greater public involvement in our PLCs can only help strengthen the bonds of our society. As we prepare for the challenges and opportunities of Brexit it is essential that we are united in seeking the best for our economy in general and for our major companies in particular - popular PLC participation can only help.

Moreover, by providing additional motivation for PLC boards to focus on the long term national interest, greater public involvement should improve the performance of our major corporate assets.



Public limited companies have drifted a long way from the early idea that a company should be a group of people who break bread together. If we are dissatisfied about that then we have only ourselves to blame - and we can only look to ourselves for an improvement. We need to become much more involved. Our status as the ultimate owners of these companies gives us the right and duty to play a leading role in shaping our economic future. It is time we took the reins.

About this author

Richard Ellis is a solicitor and school governor. He is writing in a personal capacity.

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The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.