So Ranbaxy are to be sold to a Japanese pharmaceutical company. Sovereign wealth funds from the Gulf and Asia are helping to restore the balance sheets of major US banks. The People’s Bank of China is buying a stake in British blue-chip companies. Warren Buffet has toured Europe looking to buy companies in Germany’s Mittelstand. The UK’s Financial Services Authority has decided to take action on the transparency of stocklending. The Takeover Panel has started to focus on the role of contracts for difference in bids. The Rockefeller family decided to get involved in a governance resolution at this year’s Exxon AGM.

All these recent news items have one thing in common. They are part of the kaleidoscope of change surrounding the ownership of companies.

This has stimulated the production of a study on ‘tomorrow’s owners’, including how corporate ownership is changing, which types of ownership produce the best results and what are the drawbacks of different ownership models.

The study will be published in the autumn and will look at the impact of different patterns of ownership on corporate behaviour and explore the role of accountability in the relationship between companies and their owners.

Corporate ownership is changing and over the last 20 years it has been influenced by several things such as privatisation and nationalisation, accelerating globalisation, consolidation, the rise of private equity and short-selling.

Ownership can be emotive and controversial. In 2006, there was a debate about hedge funds. In 2007, there was a debate about private equity. In 2008, the spotlight has been on sovereign wealth funds. Yet the reality is that these different asset classes can provide very positive ownership of companies and it is hard to generalise.

Private equity and sovereign funds are often long-term investors that seek close alignment with company management, and investor relations and finance directors often tell us that dialogues with hedge funds can be among their most challenging.

We need to move beyond generalisation to something deeper. The debate about ownership is not the same as the perennial debate about short-termism, but they are linked. Every corporate crisis or failure, and every challenge by a Knight Vinke or Nelson Peltz, brings the relationship between managers and owners into sharper relief. It reminds us of the question: what does it mean to be an owner? How do institutional investors become more effective at getting the best out of a company?

One way of looking at the recent changes is to say that, essentially, capitalism works because of two disciplines – the obligations of ownership and the inevitable focus on short-term financial performance. Both disciplines are equally important to apply to quoted companies to keep them efficient and encourage their growth.

Most recently there has been evidence that ownership could be losing ground to trading, with the transactional crowding out the relational. That is, the stewardship elements of ownership may be damaged or diluted by a focus on shorter-term share price movements, the rise of contracts for differences and other derivatives, stocklending and short-selling.

While all these form a liquid market that focuses mangers’ minds on the current valuation of the company, this may not create the optimal environment in which to make wise long-term investment decisions.

For some, ownership is no more than a financial claim on a market instrument or commodity where the owner may have no qualms about wrecking strategies that support their short-term positions.

On the other hand, there is a strong and developing responsible investment movement – led by the UN Principles for Responsible Investment initiative – in which many institutions around the world are playing an important role. These large funds are now acknowledging the stewardship opportunities and responsibilities linked to their ownership of companies through their equity shareholdings. Thus, many of the world’s largest investors have realised that it is in their own economic self-interest for companies to consider the well-being of the economies, societies and environments in which they operate.

The discipline of ownership operates best through disclosure and dialogue – with a company’s management accountable to the owner for its performance. The ownership structure of a company may limit or facilitate this accountability, affecting the company’s operational efficiency and effectiveness, the quality and type of its reporting and the extent to which the owner can challenge and discipline management. Such discipline, if it operates properly, may be seen as a vital protection against managerial greed and short-termism.

The share price is a more impersonal discipline, reflecting the accumulated research, judgement, expert knowledge, market rumour and sentiment and speculation about the future of a company relative to its peers and the market. Over the short term, the share price may not reflect the quality of management and governance, but over the longer term it does.

Capitalism is likely to work best when the discipline of the market and accountability to the owner are working well and creatively together. Indeed, the interests of the owner are reflected in the movement of the share price; yet great companies are never built on share price alone. Enduring shareholder value is created by companies that lay strong and deep foundations in the quality of what they do, the people who do it and the strategy, processes and values that shape their actions.

In equity markets, we have for many years promoted the premise that companies with informed and involved shareholders are more likely to achieve superior long-term performance than those without. Ownership rights provide a key discipline in achieving the goal of long-term value creation. Indeed, the stronger and more representative that shareholder voice, the more effective it is likely to be.

But the traditional large quoted company in the UK or the US, with its broad shareholder base, is far from the only template for effective corporate ownership. Employee-owned partnerships such as John Lewis in the UK and Mondragon in Spain are both good examples of successful alternatives. There are also many family businesses in Europe, Middle East and Asia that have developed over the long term into leaders in their industries.

The upcoming study on tomorrow’s owners will be important for everyone who invests in businesses and benefits from their activities, as it will examine the implications of the current shifts in ownership and explore which key features of ownership best support companies and investors in creating long-term value.

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