AUSTRALIA, according to the Australian Securities Exchange (ASX), has one of the highest rates of individual share ownership in the world. It’s the best example we have of an equity ownership culture — something many U.S. policy makers and politicians wish America would become.
In America, rates of direct share ownership among the U.S. population are declining rapidly. In 1950, American individual investors directly held 92% of stocks. Today they own just 32%.
Individual ownership has been replaced by what John Bogle, the founder of the Vanguard funds, calls “agency ownership.” Ownership of most big U.S. companies is concentrated in the hands of a few big institutional investors, who manage the money of millions of individuals in a detached manner.
Arrogant, unresponsive and out-of-touch
Bogle believes this is bad for capitalism and is at the root of what ails America Inc. and its global competitiveness. I agree because I believe that no company is sustainable in the long run if it does not earn the support or “a license to operate” from society at large.
And with rates of direct individual ownership declining, corporate America’s leaders and the rest of the population are drifting further apart. They have less and less in common because regular folk have lost their connection to corporations through joint ownership.
This shows up in the general population’s deep suspicion and distrust of corporate leaders. Despite a raft of new laws designed to make America’s companies more accountable to shareholders, the gulf between boards and management, and the rest of society has continued to widen.
Antagonism towards corporations is at a fever pitch, evidenced by increasing activism, not only among shareholders, but among customers and employees as well. Think Wal-Mart, Home Depot or even Starbucks.
If SOX is working and big corporations are earning back trust, why then do only 16% of American adults say they have a great deal of confidence in major corporations, according to a March 2007 Harris Interactive poll?
I submit that it’s because we’ve changed the laws, but not U.S. corporate culture. Corporations still act like they did before SOX. They’re arrogant, unresponsive and out-of-touch.
Education breeds ownership culture
So what are the Australians doing that American large-caps are not? I’ve looked at this and have experience of it on two fronts. First, in my former career, I was involved in investor education for the Canadian securities industry. Through education, we wanted to help Canadian citizens learn how to invest and take care of their financial futures.
When we looked around the world for models of public education programs, Australia stood out. The ASX has an amazingly successful public education program. They have educated thousands of Australians on how to read financial statements, analyze companies and manage a basic portfolio.
This in turn has fostered a dynamic retail shareholder market in Australia, with organizations like the Australian Shareholders’ Association playing a leading role and attending annual meetings to quiz management on company policies and performance.
Australian regulation and company law also are heavily influenced by high retail ownership rates, as evidenced by a heavier emphasis on plain English in disclosures and a fairly robust corporate governance framework.
Vibrant annual meetings
I also look at how Australian companies use the Web to communicate with and engage their shareholders. This is something they do quite well. Quite often you’ll see them video webcasting their annual meetings, which often will include retail shareholders asking pointed questions.
In fact, I’ll often start my visit to an Australian company’s website by loading the annual meeting webcast and listening to it while I review the rest of the site. It’s fascinating to hear what is on shareholders’ minds at the various companies. From demands for a larger dividend to demands for larger text size in the annual report, Australian shareholders let their boards and management know what they want.
There’s laughter and barbs and some raising of voices, but at the end of the day you get the distinct impression that both the directors and the shareholders value their time together. They’re in the same boat, after all, and talking to each other keeps things real. It forces directors to come down out of their ivory towers.
We like our retail shareholders
In fact, I think most Australian executives enjoy their annual meetings and their active retail shareholders. I’ve heard the CFO of a giant Australian company with operations worldwide stick up for his retail shareholders when the manager of a big American mutual fund suggested the company close its dividend reinvestment plan.
“That’s not going to happen,” he said. “Our retail shareholders like the plan, and we like our retail shareholders.” In other words, get stuffed, dude.
Unfortunately, there’s a movement among some in Australia to want to be more like American companies. That would be sad and ultimately counterproductive. If nothing else, American companies should be more like Australian ones.
Note: This post was inspired by my earlier post today about Black & Decker.