The Garrulous Jay – The Influence Illusion

Publish date


What I’m about to say it so obvious it may not need stating, but it provides context to what follows so I shall say it anyway. When you buy shares in a company you are not providing that company with money. Conversely, selling shares in a business does not deprive it of capital.

The only exception to this is when a company issues fresh shares through an initial public offering or rights issue, for example. The rest of the time becoming a shareholder involves giving money to another shareholder. It therefore has no direct bearing on the assets, the liabilities or the profitability of the business.

A company’s share price is effectively the collective expression of the market’s opinion about the future prospects of that business: nothing more and nothing less.

In an age of rising “stakeholder capitalism”, where non-financial considerations are gaining in importance relative to the simple goal of profit-maximisation, this matters. Investors who think buying shares buys influence, or selling shares deprives a business of the capital needed to grow, are to some extent labouring under an illusion.

This is particularly the case for ‘small investors’ who own the shares directly. Sure, they own a small stake in the company and in theory have the right to vote at company meetings, but their influence over what they have the right to vote on is limited, and their weight in the vote dwarfed by large institutions.

Similarly, though, when investing through a ‘collective’ vehicle such as a unit trust or an OEIC, individuals have no influence over the way that the fund manager through which they own their shares in the underlying businesses chooses to vote, although those fund managers may be able to exert meaningful pressure. BlackRock, for example, managed some $10.01 trillion on behalf of investors at the end of 2021.

Nor do investors have any influence over the way in which the fund managers through which they invest conduct their own affairs. It is an irony not lost on me that some of the world’s largest and most successful asset management enterprises are themselves not traded on the public markets. This is particularly the case when one considers public and semi-public pension funds and sovereign wealth funds.

All of this might lead one to conclude that for all the noise about the importance of environmental, social and governance issues, the ultimate owners of the shares listed on the world’s stocks markets – you and I – have next to no influence.

I would, however, challenge such a defeatist view. Organisations that take the opportunity to use their influence with the Boards of the companies they invest in seriously and responsibly are increasingly keen to communicate this.

By doing a little bit of homework it is therefore possible for individuals to invest their money through fund managers whose values and activities are aligned with their own, potentially reaping both financial and non-financial benefits.

It’s not what you own that matters, it’s the way that you own it.