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How the Shareholder first business model contributes to poverty, inequality and climate change

new briefing from the High Pay Centre and the TUC

Research by the TUC and the High Pay Centre shows the extent to which returns to shareholders, in the forms of dividend payments and share buybacks, are dramatically outpacing wages across the wider economy.

The analysis found that across the the FTSE 100 returns to shareholders (dividends and share buybacks) increased by 56% between 2014 and 2018. This resulted from a 45% increase in dividends, while share buybacks more than doubled. Nominal pay for the median worker increased by just 8% over the same period.

If wage increases had kept pace with shareholder returns, the typical worker would now be over £9,500 better off.

Total returns to shareholders over the period amounted to £442 billion from net profits of £551 billion. This is the equivalent of giving shareholders around £1.7bn a week every week from 2014 through to the end of 2018.

Payments to shareholders primarily benefit a wealthy minority. UK taxpayers earning over £150,000 (barely 1% of all taxpayers) captured around 22% of all direct income from UK dividends. Dividend income accruing via pension savings also disproportionately benefits those at the top – 46% of pension wealth is owned by the wealthiest 10% of households.

In 27% of cases, returns to shareholders were higher than the company’s net profit, including 7% of cases where dividends and/or buybacks were paid despite the company making a loss. In 2015 and 2016, total returns to shareholders came to more than total net profits for the FTSE 100 as a whole.

Throughout the period, profits varied significantly more than returns, ranging from a low of £53 billion in 2015 to  a high of £150 billion in 2017, a variation of £97 billion, with a fall between 2014 and 2015 and a sharp rise in 2017. Returns to shareholders had less than half as much variation, ranging from £74bn in 2015 to £122 billion in 2018.

This totally undermines the argument that shareholders are exposed to the greatest risk of all business stakeholders, as it suggests that they can expect consistent returns, regardless of profitability, and therefore the basis on which they are given the leading role in corporate governance structures is flawed.

Conversely, the evidence from the research strengthens the case for giving other stakeholders a say in governance structures through measures such as stronger trade union rights and worker representation on boards.

Download report

Posted on 13 November 2019

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