Ten years ago, Britain was to become a nation of shareholders as well as homeowners. Now small investors have learned they have access to neither the information nor the influence that lured them into this shareholding democracy.
Nigel Lawson should have known better. He should have known when, in the mid-1980s, as Chancellor of the Exchequer, he made two speeches designed to kickstart the share-owning democracy that it was all very well creating thousands of new shareholders but that, unless the fundamental structure and ethos of the stock market changed, disaster would result.
Hindsight is a wonderful thing, but it must be more than mere coincidence that another related, Thatcherite idea - making homeowners out of council tenants - has also fallen by the wayside.
Lawson's vision of a share-owning democracy fulfilled three key aims: it meant that costly public services could be hived off; that the sales would raise billions of pounds for the Treasury; and that the privatisations would offer the public a chance to get rich quick and express their gratitude when the next election came around.
Selling off the public sector began in earnest in 1984, with the flotation of British Telecom. There had been other denationalisations but this was the first aimed at the (wo)man in the street and overnight it took the number of shareholders in the UK from four million to five million.
In 1985, at the annual Maurice Macmillan Lecture, Lawson set out the Government's stall. After complaining about the long-term decline in individual share ownership and the drift towards institutions, Lawson continued, 'institutional investors are certainly powerful. But I give away few political secrets when I say that governments are likely to be more concerned by the prospect of alienating a mass of individual shareholders than they are by the lobbying of half a dozen investment managers.'
In March the following year, in his budget, the Chancellor went further, promoting the concept of popular capitalism in Britain. Said Lawson: 'just as we have made Britain a nation of homeowners, it is the long-term ambition of this Government to make the British people a nation of shareholders too; to create a popular capitalism, in which more and more men and women have a direct stake in British industry and business.'
To preach that gospel, later in the year, the character of Sid was born.
Originally created to promote the British Gas offer, Sid soon came to have a wider resonance. Never shown on the adverts, Sid was portrayed as the ordinary bloke who, if he only knew about them, would want to buy the shares, hence the slogan, 'Tell Sid'. For those who created him, he served his purpose. Thanks to him, the British Gas campaign was a soaraway success, and pushed the number of shareholders in the country from six million to over eight million. Nonetheless he is someone the Government would rather forget.
For, a decade later, Lawson's grand vision is in tatters: the City now looks down on Sids; private client departments at most big-name brokers have either vanished or are in retreat; it's virtually impossible for the individual investor to get quality advice; share shops have failed to take off; private investors have no power, no say in the boardroom and can do little to prevent directors awarding themselves outlandish pay packages; institutions remain all-powerful; and the stock exchange is dominated by representatives from institutions. Final proof of the demise of the shareholding democracy comes from the latest changes to the Yellow Book, the stock exchange's rules for new issues. These decree that issues of up to £25 million can be placed directly with institutions, thus cutting out the little man completely; between £25 million and £50 million, issues 'generally require' a public offering but one is not compulsory; only over £50 million must there be public participation. The Sids have well and truly had their day: Michael Lawrence, the former chief executive of the stock exchange, is even on record as wondering whether anyone with less than £5,000 to invest should buy shares at all.
The demographic figures also show the popular capitalism bubble has burst.
In 1979, there were three million shareholders in Britain. Then came the big push that saw British Airways, British Gas, the electricity and water companies, and power generators join the stock market. By the end of that process, in 1990, according to a joint Treasury-stock exchange survey, there were 11 million shareholders in Britain. Since then that figure has dropped steadily and now stands at 9.5 million, says Pro-Share, the part-stock exchange-funded body set up to promote wider share ownership.
These statistics quickly pale even further when looked at in greater detail. Of that 9.5 million, almost 70% are aged over 40, while 33% are drawn from the AB socio-economic bracket; only 4% are from the north, 4% from East Anglia, 4% from Wales and so on, right across the regions. Only one other region, apart from the South East, manages double figures - the South West with 10%. The South East dominates with 40% of the nation's investors.
Equally depressing for advocates of popular capitalism is the concentration of shares people own. Over half of all private shareholders have their shares in one company, in all probability one of the big issues. BT, Abbey National, British Gas, Power Gen and National Power each have more than 1 million ordinary shareholders. The next highest is another big sell-off, BAA, with 514,000.
Despite Lawson's predictions, a handful of investment managers are still able to call the shots more than the mass of individual shareholders.
In short, there is no mass at all. The average FTSE company is 80%-owned by institutions, with a mere 20% held by individuals. The recent takeover bid by Granada for Forte was effectively decided by one fund manager speaking for a block of shares rather than the thousands of small investors on the register who, between them, mustered 15%. Stuart Valentine, research director of ProShare, claims that, if Forte had had more private investors, Granada would not have won. '(Private investors) would have been more loyal to Forte and would have feared a change of style. Granada would have found it more difficult convincing thousands of shareholders rather than Carol Galley (the City fund manager who swung the battle by backing Granada).'
That imbalance applies across the market. According to the stock exchange's own study, in 1993, the latest year for which figures are available, on average £1.4 billion was traded each day on the London stock market, of which £214 million was by private investors. In 1987, the average daily total was £1.1 billion, of which £241 million was traded by personal clients meaning that, in what was supposed to have been a period of explosive growth for small investors, their activity has actually decreased, while that of the institutions has risen.
More alarming - and something that might also explain the overall decline - is the experience of ordinary shareholders when they have moved away from the safety of privatisations, to try their hand at playing the market proper. For what Sid was never told was that the privatisations which gave him a taste for speculating in reality could not fail. They were priced so low and the institutions were so tightly held back that, from day one, private investors' shares showed enormous gains. That has not applied to other stocks. Away from the sell-offs, the stock market has proved an unforgiving place.
A major part of the problem has been the lack of quality advice available to the little man or woman. Large City firms do not want to know, preferring to concentrate on their most profitable customers, the institutions. One analyst at a forum which played a large part in selling two of the biggest privatisations - and made a lot of money from them - even said that if small investors phone up, their calls are not taken. Inside knowledge never reaches the ordinary investor. Every large company has an investor relations manager but he or she exists primarily for the institutional shareholders. Most institutions also get to meet the senior management - something unheard of for small shareholders.
A lack of real information has led shareholders to make some strange investment decisions. Sharelink, Britain's largest private client broker, publishes lists of its clients' favourite purchases. A year ago the list contained several companies such as Eurotunnel and EuroDisney which have performed appallingly over the last 12 months, as well as Trafalgar House whose plummeting fortunes were only arrested by Kvaerner's takeover. On the latest list of most popular buys among Sharelink clients are BT, Chiroscience, a biotechnology group, Manchester United and British Gas - this last, despite an upcoming and well-flagged price review formula which knocked down the British Gas share price.
When Sid plays the market, it seems he either follows his nose or turns to the pages of the financial press. It can be little coincidence that some of the biggest croppers on the stock market in recent years have also been those shares which were most heavily touted in the business pages, and which consequently contained a disproportionate number of small investors. Normally, a company like Parkfield, say, a relatively small construction, engineering and entertainment mishmash should have numbered its private investors in the hundreds if not tens. But when it collapsed in July 1990, with debts of £300 million, no fewer than 6,500 ordinary shareholders were left high and dry. Most of them had been drawn in by glowing press reports of this obscure company and its ambition.
The same is true of virtually all the high-fliers who fell to earth so spectacularly: lots of deals; lots of press adulation; sadly, lots of Sids. Polly Peck and Mountleigh, two of the biggest to fall, each had small shareholders whose numbers reached well into five figures. The Polly Peck share register is a colossal document that's about six inches thick and which is littered with the names, not of City institutions but of ordinary people attracted by the magnetism of its chief, Asil Nadir.
And on a recent Friday at the plush RAC Club in London's Pall Mall, in an upstairs conference room, there was a sad gathering: the second annual meeting of the Mountleigh Action Group.
Members of the 50-strong audience were middle-aged, smartly dressed, sensible-looking, predominantly male - Sids to a man. They all bet on Tony Clegg and his Mountleigh property group, and they all lost. The speeches were a mixture of anger and resignation. People shook their heads and looked at the floor as Alfred Doll-Steinberg, the group's vice-chairman, relived the horror that was the Mountleigh collapse. A few months before Mountleigh went down, Binder Hamlyn, its auditors, certified the company had a net asset value of £650 million, that is, Doll-Steinberg explains, 'after all the debts, all the creditors, all the bad debts are taken into account, there is £650 million left'. In fact, there was so little that not even the secured creditors have received anything, let alone lowly shareholders.
There was real anger, not least because there is a suspicion of fraud somewhere along the line, yet this group is all there is left to show for the once-voluminous Mountleigh share register. Group members are dipping into their own pockets to explore bringing legal claims. Noticeable by their absence that Friday were the institutions who lost on Mountleigh. Fund managers can afford to write off their loss, to put it down to a bad business decision, to experience. 'The Establishment has an astonishing way of turning a blind eye when things go wrong,' says Tom Benyon, the former Tory MP who heads the action group, 'institutions are notoriously lax at calling colleagues in other institutions to account'.
Benyon, who, in addition to heading the Mountleigh Action Group, has also formed the Guild of Shareholders, a more aggressive, militant organisation than ProShare, says, 'small shareholders are patronised and ignored. The City, which is in the business of providing a service, has a lot to answer for.' Such disservice, Benyon maintains, 'can also lead to the exploitation of a naive minority.
Often, in companies which have performed badly, there will be no institutional shareholders.
Personally, I am a great believer in caveat emptor, but I can't help asking myself why.'
The fact is that there is no such thing as a share-owning democracy.
All the machinery exists instead to service the institutions. Sid is there to make up the numbers, to be taken to the cleaners, often in the most shameless and arrogant way imaginable.
Some years ago, for example, when I worked on another newspaper, I was asked to choose a Share of the Year for the annual New Year feature. Stuck for a recommendation, I rang a friend at a firm of stockbrokers.
He was their Extel-rated star analyst. After a moment's deliberation, he suggested Ross Group. The arguments he presented to me were extremely cogent: it was a small, go-ahead electronics distributor, under new management, being turned around, with a core business of exciting niche products, with plenty of scope for disposals and cost-cutting. He said it couldn't fail.
Impressed, I checked all the material that financial journalists ever receive on a quoted company: the McCarthy cuttings files, the Extel cards, analysts' reports, annual report and accounts, press releases. Ross was not a huge business so it was not well-covered by analysts. The annual report said very little. Press reports confirmed my friend's story of a new, dynamic top team. I made Ross my Share of the Year. On the Monday, after the article appeared, Ross shares, which, since it was a small company, were tightly held, rose 33p.
A few weeks later, I bumped into a chum, who also knew my analyst friend. He said he hoped the analyst was grateful and had been generous in his appreciation. I asked what on earth he was talking about. He said my analyst friend, unknown to me, had a big position in Ross and had made £40,000 from my tip - enough, added my informant, to buy a small country cottage.
I told this tale to Benyon whereupon his face went a funny colour. One of the groups of shareholders he represents, he said, without smiling, was Ross. He is trying to help 500 of them get their money back from a business which was hopelessly run (so much for the new management team), has declined to the brink of going under completely and now sees its share price languish at 3.5p.
Some of those 500, said Benyon - it was my turn to go a funny colour - would undoubtedly have bought the shares on the back of my tip.
Presumably, Lawson can't have had episodes like Ross in mind when he made his share-owning speech all those years ago. But he really should have known better.
Chris Blackhurst is on the staff of the Independent.