Listening to small shareholders could pay its way for capitalism

Could shareholder assemblies help make capitalism popular again? Oliver Hart, British winner of the 2016 Nobel prize in economics, raised this fascinating possibility at the London Business School on Friday. The idea, developed with Italian economist Luigi Zingales and political scientist Hélène Landemore, is for pension funds, mutual funds etc to convene small representative groups of their investors to design ethical guidelines for casting their votes on shareholder ballots on environmental, social and governmental (ESG) issues.

This builds on work by Hart and Zingales arguing that public companies should aim to maximise shareholder welfare rather than focus narrowly on financial value. Trying to maximise shareholder value in this narrow way arguably encouraged bosses to ignore the social and environmental consequences of their decisions.

Yet efforts to address this, such as measuring companies’ ESG didn’t work either, as these standards were drawn up in a top-down way without asking small shareholders what they wanted. This allowed politicians such as Donald Trump and Nigel Farage to launch often successful attacks on “woke capitalism”.

Hart, Landemore and Zingales were inspired to propose shareholder assemblies by increasingly successful experiments in using deliberative citizen assemblies to foster greater public engagement in democratic decision making.

There has already been at least one attempt to do something along the lines they propose: in 2024 a Dutch pension fund gathered 50 randomly selected future pensioners for three days of deliberation that generated 49 proposals for responsible investing that were presented to the board. If it can drive more responsible corporate behaviour by listening to what small shareholders really want, this idea could be a winner.

Photograph: Getty