Sid will call the shots

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The Independent Online
It is windfall time. Everyone in the world of finance has become concerned about the impact of the windfall gains made by account holders in building societies and mutual insurance groups which convert to shareholder ownership. The surge in the price of Alliance & Leicester shares, plus just this week the ar-rival of the Halifax on the stock market, suggests that the total increase in people's wealth this year will be even more than the pounds 30-35 billion recently estimated. Remember that we have two really big share sales, the Woolwich and Norwich Union, still to come, plus some smaller ones.

This is affecting economic policy. Fear that a fair portion of these windfalls might be spent rather than saved was almost certainly one of the main reasons why the new Bank of England monetary committee decided on Friday to ease interest rates up another quarter-point.

But there is another aspect of these windfalls which has received rather less attention: the the number of personal shareholders. I suspect that in another 20 years this social impact will come to seem much more important than the economic impact, for the surge in the number of shareholders really will change our society in irreversible ways.

Some numbers: it looks as though the number of Britons holding shares will rise during 1997 from around 9.5 million at the beginning to between 15 and 16 million at the end - that is an estimate by Proshare, the body which seeks to promote individual share ownership.

This will be an astonishing change: by far the largest increase in numerical terms that has ever taken place in one year, and as big a change in proportionate terms as happened when Sid (remember him?) helped launch British Gas in 1986. As the graph shows, we had only 3 million personal shareholders in 1979, so in less than 20 years the number of shareholders will have risen five-fold. It took 18 years to add the first 6 million, and then just one year (ironically mostly under a Labour government) to add the second 6 million.

If one looks at the proportion of the total shareholdings held by individuals, as opposed to the actual numbers, a rather different picture emerges. As the graph also shows, the proportion of shares held by individuals fell steadily until the middle 1980s, as people saved more and more in the form of pensions and life assurance policies. That was unsurprising, given the enormous tax advantages of contractual saving. Now the fall seems to have levelled off, and it may even have been reversed. We cannot be sure of that for another 18 months, as at the moment we only have estimates since 1994, and will only get this year's figures when the results of a new government survey are produced some time next year. But it is quite possible that this new government will find itself not only having five times more personal shareholders than when Labour was last in power, but facing a long-term reversal of the tendency for personal shareholding to fall at the expense of institutional shareholding.

The tendency for personal shareholding to become more popular may be strengthened by the change now taking place in the way shares are held. Anyone who follows the stock market will be aware of the shift towards shares being held in nominee names as a result of the changes in the settlement system. The new Crest system works much more conveniently if people do not hang on to certificates themselves and insist on having their names on the register, but instead hold the shares through the nominee of their stockbroker, bank or whatever.

This change has been the subject of enormous debate. What has received much less attention is its potential consequences for the practice of individual shareholdings. Alliance & Leicester has recently pioneered the idea of the company running an in-house nominee service for members. At one level this is merely a useful convenience: it means that members have none of the bother of keeping certificates. But it also gives the company the ability to reach its shareholders, while denying that opportunity to its rivals.

You see, anyone can mail the shareholders of any company if they are on the published register, as shareholders will be all too aware when they receive bundles of junk mail. But if shareholders are held through a nominee, it is much more complicated to find out who they are. But if the company itself runs the nominee list, it immediately has a potential loyalty club. For existing public companies this is not much help, because it would take time to persuade a significant portion of its shareholders to transfer their shares. But for the building societies and mutual insurance groups now converting it is very useful - a group of shareholders whose loyalty can be encouraged by offering special incentives.

As yet nothing has happened on this front, but I expect the Woolwich to pioneer this use of the in-house nominee company to offer shareholder perks shortly. If the Woolwich is successful, it will be imitated. This could be the start of something big. Every company with a large shareholder base is seeking to find ways of communicating better with investors. For any company selling goods or services regularly to individuals, these people are a valuable business asset: they are akin to the loyalty schemes of the supermarkets.

This process will work both ways. The more that companies can create loyal groups of shareholders, the more their business will benefit. But in addition, the more that shareholders are offered special perks, the more incentive there is for them to retain their holdings and perhaps keep those holdings via the in-house nominee company. Shareholder perks have existed for a long time, but the combination of a growing awareness of the value of loyalty clubs and the invention of the in-house nominee company will give them a powerful boost.

There will be, by the end of this year, between 15 and 16 million people out there owning shares. This is obviously a powerful political lobby, but it is also an immensely attractive customer group: relatively rich, quite sophisticated, probably canny. Most important of all, it has achieved a critical mass. A generation ago, when there were only 3 million shareholders, mainly among the elderly, they did not comprise a clear and useful market. Now, not only are the numbers vastly greater, but the profile will be younger and the information about them much more detailed. Most important of all, this is a growth market. Commercial interest will ensure it continues to grow. Think about it - how many other markets go from 9 million people to 15 million in less than a year?