The New Capitalists

16 May 2007 David Pitt-Watson

Businesses around the world are no longer owned by the wealthy few, but by a burgeoning class of citizen investors. David Pitt-Watson explains this new breed of capitalists.

Most CEOs will repeat, as a mantra, that the aim of their business is to maximise shareholder value. But few of them stop to ask the question, 'Who are my company's shareholders?'.

That is a pretty important omission. Because if you don't know who your shareholders are, how can you know what constitutes value for them?

Wait a minute, you may say. Most CEOs meet shareholders all the time, as they wander around the investment institutions of the financial centres of the world. They are called Fidelity, Barclays, Alliance, AXA.

But these institutions, though they control many hundreds of billions in shares, aren't the ultimate owners. They are the agents of pensions, insurance and other collective savings plans representing hundreds of millions of savers.

The truth is that businesses around the world are no longer owned by the wealthy few, but by a burgeoning class of citizen investors who, like it or not, are demanding fresh and often unfamiliar skills from corporate leaders. One UK company began to calculate how many people benefited from its dividends. They gave up when the count reached 280 million. Two-thirds of the UK population has direct or indirect interests in company shares.


Each pensioner owns a tiny sliver of vast numbers of companies. From IT pacesetters in Silicon Valley to the oil wells of Nigeria, from breweries in Mexico to the hardware retailers of America, citizens collectively are now the ultimate owners.

Chairmen and CEOs ignore these investors at their peril. Poor corporate performance now can ravage the accounts and future dreams of millions of middle and working class savers. Through their agents – pension funds and money managers – these citizen investors are learning to make their interests heard like never before.

Indeed, way behind the scenes, complex pressures are building to turn what were once passive, faceless fund managers into market activists. Moreover, the marketplace is handing citizen investor funds tools to assume the powers of ownership. Proxy voting advisory services and corporate governance rating agencies analyse everything from who is on a corporate board to whether executive pay aligns with long-term shareowner interests.

"Few CEOs stop to ask the question, 'Who are my company's shareholders'."

Citizen investors now have information sources on everything from the sustainability and quality of a company's earnings, to perquisites the board awards it's CEO, to the shape and size of a firm's carbon emission footprint. Increasingly, activist funds stand ready to oust directors who fail long-term performance expectations.

The bottom line: the owner revolution forces directors and executives to navigate a fresh path to shareowner confidence.


What do citizen investors want of companies that CEOs didn't have to worry about in the past? Here is the central difference. A lone owner defines what he or she wants from the enterprise and when.

But citizen investors are society at large. Yes, individuals own equity to make money. They save for their long-term future, such as retirement. However, it makes no sense for these owners to encourage a corporation to make a great profit if they will have to pay for it through another means.


So what are executives to do? The capitalist manifesto is a set of guidelines we've culled from vanguard boards. The manifesto forms the lesson plan for a new school of corporate leadership who are genuine when they say they want to deliver shareholder value. Its ten points chart ways to success by treating citizen investors not as the enemy, but as an asset.

These lessons are not some random selection of 'good things to do'. They are the inevitable demands of the diversified citizen investor owners to whom executives have promised to deliver value:

  1. Be profitable – create value
  2. Only grow where you can create value
  3. Pay people fairly to do the right things
  4. Do not waste capital
  5. Focus where your skills are strongest
  6. Renew the organisation
  7. Treat customers, suppliers, workers and communities fairly
  8. Seek regulations which ensure your operations do not cause collateral damage and your competitors do not gain unfair advantage
  9. Stay clear of partisan politics
  10. Communicate what you are doing and be accountable for it

At first glance these seem simple statements, but take a closer look. You'll find that they match the revolution in corporate ownership with a revolution in corporate management. Let's just take a couple of examples.

Be profitable and create value: sound familiar? Yet many executives in conventional business spend money on ventures that have little prospect of creating value.

Maybe you recognise the phenomenon: enthusiasm for a business gets translated into excessive optimism about prospects. Then, through the magic of the spreadsheet, optimism is turned into a complex financial schedule, where scores of untested assumptions create a plan built on sand. So schemes look brilliant on paper, but don't deliver real value.

Seek regulations which ensure your operations do not cause collateral damage and your competitors do not gain unfair advantage: this is a less familiar demand from shareholders. Yet it is clear that, if companies do wish to create value, they should support measures meant to prevent competitive forces generating costs for society at large.

Citizen investors say they do not want companies to pollute, for instance. But what do you do if your competitors take advantage of your socially conscious behaviour to push you out of business?

"Two-thirds of the UK population has direct or indirect interests in company shares."

If competitors engage in anti-social behaviour, companies should, on behalf of their citizen investor owners, seek regulations or incentives that will modify competitive rules to ensure rivals don't create collateral damage. Ideally, such rules should be voluntary and as flexible as possible. But where this is impractical, it is appropriate to encourage statutory regulation.


Taken together, the capitalist manifesto offers CEOs a new model for creating successful publicly listed corporations. Those who follow its recommendations will, in the end, be successful in delivering shareholder value.

In prospect is a remarkable win-win situation. As Hank McKinnell, CEO of the world's largest drugs company has said, "It is a guide for corporate leaders who want to manage their businesses not only quarter to quarter, but also generation to generation." The reward, according to James Wolfensohn, former head of the World Bank, is 'the chance to make globalisation safe for profit and social equity'.