Discussion The time is right for investment culture to undergo a reappraisal

by Michael Wise _______14th November 2018

Way back when, before public figures satirised themselves, there was Spitting Image. One sketch I remember, ‘Ray of the Ravers’, was a rip-off of the boys’ own comic (itself also long defunct) and offered a take on how things were changing on Planet Football. For starters, there was the moral panic of the time (hooliganism) and also a dig at the nascent self-regard of celebrity culture. ‘My perm! It’s ruined my perm!’ fretted Roy after heroically heading the winning goal in the 96th minute.

Most prescient of all, though, was the sport’s commercialisation. Never mind the community spirit built on a Saturday afternoon, the belonging felt on the terraces as we cheered our heroes on. Never mind an appreciation of what, in his autobiography, former Chelsea, Stoke, Arsenal and England midfielder Alan Hudson titled ‘The Working Man’s Ballet’. Never mind any of that.

No, what really mattered was the bottom line. So, in the end, the board of Melchester Rovers did the logical thing and cut out the middle man: the football side of the operation withered and died while the fans, committed to the last, made do by cheering on the club’s share price as it leapt above that of rivals on a city trading screen.

This week has seen publication of the latest report published by Tomorrow’s Company, ‘A Question of Investment’, which contains findings that anyone who has had the experience of working for a plc might, to a greater or lesser extent, acknowledge. They might, perhaps, remember that the training they received never quite measured up to that they were promised – if they received any at all, that is, rather than the unspoken assumption that one must instead bluff along learning ‘on the job’, all the while hoping that the client doesn’t twig. It might be the threadbare state of the facilities: the tired old desktop computers, for example. Or it might be the quality of the work on offer: a large public sector project, say, where little or no progress is made month-on-month, year-on-year.

Is this why I joined? To acquire skills in the most haphazard, piecemeal way doing work that is neither particularly interesting nor seems to improve things in any obvious way?

Of course, such idealism must be tempered – this is work after all – and if there’s little meaning to be found in one’s endeavours then there’s always the financial reward, right? Perhaps, but if the ‘challenging current climate’ is perpetual then perhaps not. (Myself and a friend at least tried to make light of this – describing ourselves, in the pub after our performance reviews, sat hunched and defeated, pigeon-toed and worn down, while the piano hook from Coldplay’s ‘Trouble’ played in our heads. ‘You’re doing well, but only in truly exceptional cases is anyone getting a rise above inflation this year.’)

The plc does not play such images to the wider world, not when it is ranked 24th or thereabouts in the FTSE 100 and the chief executive is the highest-paid in the land. Out there, things are going swimmingly. And if you can afford to pay into the sharesave scheme then you too can dive in. Never mind that this CRM we’re building is going to have to be reverse engineered because the original design – the one agreed before the client started chopping and changing its requirements all the time – has long become way too complicated, there’s still the prospect of cashing in and buying a sports car.

It’s little wonder that the experience creates, if not a resentment, then a cynicism: can one look at the glowing health of the share price, compare and contrast with the anaemic reality, and come to any other conclusion?

Most of us, I suspect, either don’t know or don’t care about the ways and means of corporate governance, while those who do get an eyeful of the Emperor’s New Clothes prefer not to think about it. The money goes in at the end of the month, after all; it could be worse.

Yet the upshot is that a culture of conformity is created, one which, in a large plc already bogged down by its own weight, will hardly inspire fresh, innovative ideas. If the ground becomes barren and stony rather than rich and fertile, it stands to reason that the fruit will eventually taste dry and bitter. It’s ironic too that the short-termism we see as being so counter-productive does, in its day-to-day essence, suggest a speed – of buying and selling shares – wholly unrepresentative of how the company actually operates.

The report points out how the culture differs in the Far East, where stewardship does allow a view to the horizon. It has been pointed out to me on more than one occasion, as part of our ‘Voices of Progress’ inquiry, how, by investing in staff wages and training, and by thinking about ways of offering at least half-decent work, a large organisation might lessen the propensity for ‘churn’ and in fact create a saving in the longer-run.

Presumably this sort of common-sense analysis is not beyond the grasp of board directors, yet it’s the quarterly report that matters. A short-termist culture is ingrained and passed on – as is a fear of not performing, from the fund managers (who themselves are under pressure to perform in the short term) to the boardroom.

Strikingly, UK productivity per hour is 35% below Germany, and 30% below that of the US, speaking not only of a relative lack of investment, but also of the City’s dominance over the wider UK economy, relatively-speaking. It’s an advantage that is vaunted and trumpeted, but which also masks structural and cultural flaws. One’s impression is of a hub that has more or less insulated itself from the hinterland and which prefers to look elsewhere.

And yet, as the report emphasises, if one looks away from the world of plcs, there is much cause for optimism: the big corporates might be erring towards share buy backs and higher dividend pay-outs, yet so far as entrepreneurs, tech venture funds and family-owned business are concerned, investment levels are up. Meanwhile, sectors such as Fin Tech and Bio Tech have attracted some of the highest levels of investment globally.

Recommendations – more diverse skills and experiences on boards, for example, and reducing investment risk through greater industry collaboration – are aimed at shifting the predominant culture. It might do so over time, but at present it survives because it’s what those who exercise power know and it works for them. Of course it works! The FTSE is at a record high, isn’t it?

An obvious analogy when measuring the success of a plc and of the country as a whole is that between market capitalisation and GDP; so much of what is important is missed. And when considering questions of culture pertaining to short-termism, neither is it too unreasonable a jump to look elsewhere at current events and wonder whether this is a malaise that sweeps across the board, so to speak.

As the second post-war consensus coughs and splutters, surely it’s right that one of its original totemic features – the share offer – undergoes a reappraisal.