No doubt many of you have read the proposal by George Osborne to allow employees to take shares in a company in exchange for waiving their employee rights, with the added ‘incentive’ that these shares would not be subject to capital gains treatment.

When I read these reports it conjured up the scene from Chicken Run, when one of the hens says after another failed scheme to escape: “I have never heard such a load of rubbish in all my life.” And I’m not alone; I believe one prominent businessman suggested that this scheme had been made up in a playground. Does the Government not check with anyone before producing these stupid ideas? Remember the proposed relaxation of planning laws to permit larger conservatories in a laughable bid to bolster the construction industry? I lambasted it in a previous blog. I now read that the proposal has been ‘demolished’ by the refusal of local authorities to cooperate. What? The Government didn’t think of that?! No surprises here!

So back to the point under debate: swapping employment protection rights for shares. The first problem with the idea is that share ownership and employee rights are aimed at two different business drivers. Share ownership encourages employees to align their interests with other shareholders, and benefit from the long term growth of the company. Employee protection provides, well, rights of protection. Why would anyone consider swapping one for the other, unless the share value more than compensated for the loss of protection? In which case, why would a company issue them at such generous terms?

The next problem is that the tax incentive is worthless. How many employees who genuinely require employment protection actually use their £10k a year annual allowance? Note also that most managers do no rely on employee protection as their contracts have a far greater intrinsic value. As a consequence, there are no practical tax advantages to this scheme.

So who exactly is this scheme aimed at? Not at employees of public companies, as these individuals can buy shares without sacrificing their rights. If we assume that unfair dismissal can be worth on average £20k, I simply cannot get the maths to work. How much equity will you have to give away to justify losing £20k per person?

There is simply nothing positive about this scheme: no moral compass, no tax advantages, no incentives, and no justification. It is absurd. You could not make it up!

The problem with this Government is that there is no vision. And that’s ironic, or at least coincidental, as the failure of Vision in a business context was the subject of my blog just a fortnight ago, and a topic of discussion at many of my recent Alternative Board & Sounding Board sessions. As this Government does not know where it wants to go, it tinkers instead with silly projects that have no meaningful impact on day-to-day life. You could definitely say the same about some companies but people like me and fine support initiatives like Peer Boards can help with that. I guess what I need to do is get the Government onto one of my Alternative Board events. I could brand it ‘The Alternative Government – One That Actually Communicates and Works’. Wish me luck…!

I recall an advert from a couple of decades ago where a chap was so enamoured with his electric shaver that he bought the company.

This article references a four-year study showing that simple share ownership, not owning the entire company or a majority or even a significant slice but mere share ownership, improves employee engagement. No doubt the Microsofts, Apples and Googles of this world would agree with that. Actually, I have no idea. In my mind or imagination I have an image of their creative types slaving away out of a sense of purpose and mission. Might just have been a movie. Or three movies.

Here are some other perspectives and some more depth.

My problem with surveys, once again, is the futility of asking people if they would work harder if they had owned shares in the company for which they worked. Asking people their intended conditional behaviours is lazy. Better to observe and compare their actual behaviours under different conditions. ie working with and without share ownership or before and after.

But let’s take the predictable findings at face value. I am a sole contractor. I own my company. I am my company. I’ve never worked harder or been more engaged. I think share ownership as part of remuneration might work pretty well and move people in the direction of hugely engaged owner-operator types but it’ll never quite get to that level. I like my product so much that I AM the company.

This would appear to be another tactic to prevent further transparency at the firm and also to enable the bureaucrats to continue milking the firm for all its worth.

If this trend continues, don’t expect privatisation campaigns to result in any opportunities for widespread share ownership.

It is highly likely that such companies will come on the market if and when the oil price falls again.

However, such moves will help to kill off plans to transform Moscow into an international financial centre, as to date most Russian companies are either state-controlled or controlled by oligarchs with murky pasts and close ties to government.

Some extracts from the article published on the New Scientist with the title

Revealed – the capitalist network that runs the world.

(Image: PLoS One)

“An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy. (…)

It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs). (…)

From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power. (…)

The work (…) revealed a core of 1318 companies with interlocking ownerships. (…)

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies (…) that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. ” (…)

For the full article:

http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html

CIRI submitted a recommendation to the Canadian Securities Administrators on Tuesday that would see the level at which shareholders must publicly disclose their ownership position lowered to 5% from 10%.

In addition, CIRI proposed lowering the subsequent incremental reporting threshold to 1% from 2% and have this apply to both increases and decreases in shareholding.

“In Canada, the level of transparency of ownership disclosure significantly trails the rest of the world and this is negatively affecting Canadian market efficiency,” said Tom Enright, CIRI’s president & CEO, in a release.

“For a market to be truly transparent requires the appropriate level of transparency from all market participants.”

CIRI said Canada’s reporting threshold of 10% ownership is at the same level found in smaller markets like Latvia, Pakistan and Chile, but is much higher when compared to the United States, France, Germany, India, Japan and Australia, all of whom, have a 5% disclosure threshold.

The threshold is even higher, CIRI added, when compared to the The United Kingdom and Italy, which have a 3% and 2% threshold, respectively.

In this issue, Ian Mellett describes his business visit to India and the various forms of property investment available to new immigrants

Since my last article in this magazine, I have had the wonderful experience of being involved in a fantastic business trip to India.  It was incredible to be exposed to the social and cultural elements that exist in India on the one hand, contrasted against the might of the Indian economy on the other.  We even managed to squeeze in a visit to the Taj Mahal, one of the seven man-made wonders of the world.  The focus of the trip was “New Zealand Invest 2010” – promoting New Zealand from both an investment and immigration perspective.

The delegation included legendary New Zealand cricketer Sir Richard Hadlee, one of the keynote speakers, along with a group of property developers, real estate professionals and an internationally acclaimed property investment speaker.  I was invited to accompany the delegation in the capacity of an independent legal adviser.  During the various seminars, held in Delhi (23-24 January), Ludhiana (28 January) and Chandigarh (30-31 January), seminar attendees were provided with valuable information to enable them to explore lifestyle, investment and business opportunities in New Zealand.   During the numerous break-out sessions, I was called upon to provide expert independent legal advice and assistance to potential investors.  This has subsequently resulted in Quay Law now having quite a few Indian investor clients on its books, and the distinct possibility exists that there will be more to come in the future.

It goes without saying that this was a truly memorable and unique experience.  Not only was our entire delegation exposed to the broad spectrum of the Indian economy but being a cricket fanatic myself, I had the added bonus of meeting and spending two weeks with Sir Richard Hadlee.  What a nice guy, and a truly great ambassador for New Zealand.

One of the questions frequently raised by the potential Indian investors pertained to the type of property ownership involved.  I find that local purchasers in New Zealand often have the same query, so I thought that it would be useful to set out the most common forms of ownership below.

1) Fee simple: This represents a form of freehold ownership and in essence represents absolute ownership of the property. 

2) Leasehold: This is a form of property tenure where one party buys the right to occupy land or a building for a given length of time.  Until the end of the lease period the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner. 

3) Cross lease: This is a hybrid form of multi-unit tenure in which each owner has an undivided share of the underlying freehold as tenants in common, and is granted a registered leasehold estate of the particular unit or flat occupied.  Effectively the property owners share ownership of the land and each owner leases their building from the other owners, which together form the cross lease title.

4) Stratum estate: Under the Unit Titles Act 1972 the deposit of a unit plan has the effect of creating in each unit (usually multi-unit dwellings, shops, offices or industrial premises) a new kind of statutory estate called a stratum estate in freehold, or a stratum estate in leasehold, depending on whether the land which was subdivided into units was freehold or leasehold.

It is essential to determine, upfront, the exact nature of the form of property ownership when embarking upon a purchase of any property.  My experience is that it is beneficial to have your lawyer cast his/her eye over a potential purchase agreement, before you sign the document, to ensure that you fully understand the nature and form of property ownership involved.

Please feel free to contact Ian Mellett at Auckland Law firm, Quay Law for more information, or if you have any questions regarding your conveyancing or other legal needs visit our website www.quaylaw.co.nz for more information.