I was watching TV this evening when an ad for Nationwide a loan society in the UK caught my eye. In the ad which highlights the fees other banks charge their customers for using their credit cards abroad Nationwide proclaims the great benefit of having "No Shareholders". They are apparently so proud of this that they have made it the strap line of their ad campaign.
It may be old fashioned but I think shareholders are a very good thing and that market forces (be they public or private) sharpen the performance of companies and their managers. I also think it is very dangerous in a nation like the UK that is at best ambivalent about the role of business to play to the crowd by suggesting that it is shareholders who should be blamed for bad commercial policy or poor service.
The markets are not perfect and neither are the fund managers driving investment decisions nor the managers of companies seeking to maximize shareholder value but I will take a free market any day over controlled five-year planning. A financial institution should know better.
Tom Your points about shareholders market forces etc are completely valid and I along with most people reading this blog probably agree with you. But the reality is that this was a ad on national TV. The important thing to realise is that you are in the top 0.25% of the population in terms of education and intellect. Now as any one who has ever worked in a call centre will tell you the average intellect of the great British American Whatever-country is much lower. I once worked in a car insurance call centre as a student and I regularly had to explain to customers that describing the make and model of their car as “a blue one” wasn’t really going to help me give them a quote. The point is that TV ads are not really there to educate they are there to sell. So given that the average viewer probably wouldn’t really understand the significance of having a shareholder anymore than having an in-growing toe nail telling them that there are “No shareholders” is probably quite reassuring. For a large percentage of the population the TV ad might as well have said “No Additives”. It doesn’t matter whether they are right or wrong about shareholders they are there to sell current accounts and credit cards to the masses. You think they should know better? Well seemingly it was a very successful TV ad – so perhaps they knew exactly what they were trying to acheive. – Sindydoll – “No Complaints”
Tom Nationwide is a co-operative and therefore does not have shareholders. Instead it’s customers are members of the co-operative and profits are distributed amongst those members. In the U.S. it would be known as a “savings and loan” and in parts of Europe a “sparkasse bank”. These organisations make up a fair chunk of Reuters client base. In the strictest sense what they are saying is true – because their customers are members Nationwide does not need to walk the tightrope between profits for the shareholders vs competitive products and services for their customers. Instead they simply need to make sufficient profits to offset costs whilst providing competitive products and services to their members. One of the benefits returned to members can indeed be free cash withdrawals whilst abroad. Co-operatives are an excellent example of the free market – but one in which the “profiteering” element of the few i.e. the shareholders who are always seeking to maximise their return (sometimes to the detriment of customers) has been replaced with shared benefits for the many i.e. the customer/members. Many Building Societies have chosen to de-mutualise e.g. Halifax Abbey National Woolwich and become listed organisations instead. This of course highlights the issue further as the customer/members need to agree that the Society do such a thing – so how to convince them? – windfall (once off) profits in the form of offering prelisted shares at a discount i.e. get all the members to jump on the greedy “whats in it for me” train by making them shareholders. I believe it should be applauded that Nationwide has resisted the temptations to demutualise and continues to offer ongoing benefits to it’s customer/members. The CEO must be sorely tempted by the potential personal earnings that could be realised but so far it seems the co-operative ethos of the founding members has been respected. So contrary to your note it seems Nationwide does know better – they and their client/members continue to prosper whilst offering choice in a free market.