I first realised there were disadvantages to being a public company when I sat in the very expensive offices of The Body Shop's institutional shareholders and told them that we wanted to develop more radical approaches to doing business. We had already developed ethical innovations such as community trade, which involved sharing the profits from some products with the communities that produced them, as well as running many of our challenging campaigns. They weren't keen.
It was then that I realised how little control we had over the company we had founded. We never faced a hostile takeover bid such as AstraZeneca is facing at the moment, but it often surprises people that the management of a company is not in practice in control of its destiny. In effect the owners are the shareholders, and that doesn't mean they are benevolent, long-term owners, or interested in innovative plans. Takeovers are decided by shareholders, and are more usually funded by debt which falls on the company being taken over. It is a strange reversal of the ideal.
The moment I realised that we had made a mistake converting The Body Shop into a public company was about eight years after we did so. It was also the moment I felt I grew up. The first few years had all been very exciting; the value of the company doubled and then tripled. It all looked like a rational and attractive process, so it took some time to realise what was actually happening to us.
We had no training in running a business that size so we failed to understand the implications completely. What had seemed like a glamorous process became much less so when I saw just how much we were subject to other people's expectations in the City – and they weren't the same as our expectations.
We felt increasingly trapped by their conservatism and narrow outlook. There were some shareholders who were supportive – the Prudential, rather unexpectedly, always wanted us to be more innovative and go further – but generally that was not the case. The lessons of creeping loss of control made us decide to go private again if we possibly could.
Three times we tried to buy the business back. But the difficulty was that financial institutions assumed that, if we wanted to buy the company back from shareholders, we must have an idea that profits were about to rise considerably. The proposals given us all involved loading us up with such heaps of personal debt that the only way we could ever pay it down was to go public again.
Our experience of becoming a public company was that it was corrosive of financial and social innovation, and – as with AstraZeneca – most of our shareholders were institutional, and governed by very different concerns. You had to leave your humanity at the door and pick it up on the way out. They wanted us to be successful, but only in the approved way, and we couldn't be too successful either or they would be forced to reduced their holdings in their portfolio. They judged success by completely different criteria to us: we wanted to create happy, healthy staff and customers – they just wanted richer shareholders.
The real problem is that the system is designed to suit another age when shareholders might have been benevolent long-term investors, interested in the long-term destiny of the company they owned a slice of – but today they are more usually speculators who hold on to your shares for a few seconds at a time. The truth is that they no longer all deserve the title "shareholders".
In practice, there are now two or three classes of shareholders, and the only ones that ought to have the privileges of dividends and decision-making about the future of the companies they are said to own ought to be those that hold on to your shares for the longer term.
It makes no sense for the decision about who should own AstraZeneca to be taken by shareholders who – in practice – have no genuine ownership interest in the future of the company. When the dust settles from this particular takeover furore, we should start thinking more practically about the fundamental purpose of companies: the current structure of narrow shareholder ownership is based on an archaic interpretation of shareholding and a very narrow objective: to maximise their return.
There is no voice for the interests of those who work for companies, or for their contractors and clients making ever cheaper jeans in Bangladesh, for example. There needs to be some mechanism to give a voice for the general good – especially in the case of the energy giants who have such control over our future. At the moment, 90% of shareholders are institutional investors whose interests are very different from those of the companies they own, and are busily maximising the return for their own shareholders.
AstraZeneca is the tip of an iceberg. It is time we found ways to institutionalise better decisions and longer-term thinking.
