Too much cash directed to shareholders
The Bank of England’s chief economist has said that business investment has been lower than was “desirable” for years and shareholder power was leading to slower growth,
UK businesses were giving too much money to shareholders and not investing enough, Andy Haldane told BBC TV’s Newsnight programme. He warned that firms were “eating themselves” by favouring shareholder dividend payouts over investing their profits.
Haldane said that in 1970, £10 out of each £100 of profits were typically paid to shareholders through dividends.
Today, however, that figure was between £60 and £70. That left far less money available for growth-boosting investment, Haldane argued.
Part of the problem is the nature of UK company law (and US law), which gives most decision making power to shareholders.
However, other models are available. Mr Haldane noted that other systems of corporate law give greater weight to other stakeholders — such as employees and customers — than the UK system.
He argued that the model of the shareholder-dominated firm had been very successful over the past 150 years, but also said it was possible to “have too much of a good thing”. With business investment low and productivity growth weak, it may be the time to look again at the model, Haldane said.