Insights Michael Baker

This time it’s different?

Chief executives shoring up battered finances take a new interest in retail investors

The surge of retail investors into stock markets as prices tanked is one of the more unexpected results of worldwide lockdowns. From India to the US, Australiato the UK, people have used time at home to take a punt in the markets.

But the attention retail investors are showing listed firms is not a one-way street. Chief executives shoring up finances battered by coronavirus and its consequences have reciprocated. This week, building firm Taylor Wimpey was the latest UK blue-chip to include its retail investors in a £500 million cash call. They follow waste management outfit Biffa and catering group Compass in using Primary Bid, an application that offers stock options to retail investors under the same terms as institutional investors.

In the past, companies argued there was no choice but to dilute retail investors when a fast injection of funds was needed. Only institutional giants could come up with the cash needed quickly enough and the processes for dealing with these investors are less fiddly. The 2008-09 financial crisis saw institutions and governments stump up eye-watering sums in return for generous discounts. The public, deemed too hard to reach, were shut out.

Technology has since allowed for a reappraisal. Trading apps opened investing to mom and pop savers and crowdfunding of small enterprises has schooled big business in how to connect with diffuse investors. When computer-driven algorithms can buy and sell stocks within a few seconds, deepening a pool of typically more loyal retail investors may appeal as they offer diversity and resilience in the register.

Not all firms have included retail investors in their fund raisers to tackle the crisis. But the shrewdest chief executives might be sensitive to the accusation that taxpayers are bailing them out via furlough payments to their employees but disenfranchised in the fund raising. Their response to widen access to ownership could suggest a shift in approach – accelerated by the impact of the pandemic – that takes a much broader view of stakeholders and shareholders.

The portion of listed companies held by retail investors has ticked up from historic lows recorded during the 2008-09 crash. In the UK, the public now holds 13.5 per cent of quoted shares, up from 10.2 per cent in 2008. In Belgium, Germany and Finland, the figure is around 20 per cent. This comes as big business mulls whether meeting the needs of stakeholders – customers, employees and suppliers for example – should come above shareholders. The debate between the two overlooks the detail suggesting that the two groups have become somewhat more blurred.

The words “this time it’s different” are said to be the most dangerous in investing. But if coming out of the crisis we see greater democratisation and access to ownership, it could be an important driver for wealth creation and social mobility. A new pact between people, capital and markets might yet emerge.