Gotta Have a bit of Bubbly at the Shareholders'....

It's really bugging me how, in popular culture, shareholders are being painted as rich fat cats with evil intent. A classic example is the Nationwide adverts. A woman complains of being charged for taking her money out while abroad, and is told that that's like their 'tip' which pays for 'The Bubbly at the Shareholders' meeting'.

There are other examples, e.g. when a company makes a profit, there seems to be implicit disapproval (e.g. Tesco). This forgets that if a company with a turnover of a 100billion making a 1billion profit is equivalent to a company with a turnover of 100million making a million.

Now, all things being equal, I'm perfectly happy to concede that if Company A pays dividends to shareholders, and Company B has no shareholders to pay, then Company B is likely to provide better value to customers. It's common sense. However, all things are not equal.

Let's take a look at the best buy tables for financial products right now

The top three results for an instant access savings account are HSBC (6%), Citibank (5.84%) and Bradford and Bingley (demutualised BS) (5.8%). The Post Office comes fourth. Nationwide, offers 4.7% on their Instant Access account. (Based on saving £3000)

True, if you can put aside 200 quid a month, their regular saver account looks attractive, at 6.5% - until we see the Halifax at 7% (admittedly, that's a one year term though). We can do even better, with Alliance and Leicester at 12%. To be fair, it's not as straightforward as that, and here's where my argument is undermined. The higher rate is for one year, and after that you have to start from scratch, transferring the total to a regular account (6%). I think the 6.5% with Nationwide can be over a longer period. So assuming it's not fixed term then after about 20 months the 6.5% from Nationwide would be better (if I've done my sums correctly).

However, interest rates can, and do, change - 20 months is a long enough timeframe that the 'best solution' shifts, and 12% over one year could well be the better route in that case.

It doe annoy that Building societies, for example, regularly play the "we're not paying shareholders" card, but the interest rates, especially for 'starter' accounts, can be appalling, e.g. the Britannia offer 2.55% with their flexible savings account on amounts over £100000... okay, they offer more on their 'direct savings' account, but still, there are a significant number of people who want the 'security blanket' of a passbook.

In other fields, Pharmaceutical companies are sometimes castigated for the prices of their pills (and I'm completely behind the argument that prices should be lower when it comes to countries in places like Africa, supplying these nations at cost is good PR for the company too). When paying for the pills the implication is often that the company is profiting from illness and that this is inherently bad. It is true that the company profits from illness. However, it's conveniently forgotten that though each pill costs pence to produce, the first pill cost billions, and that has to be recovered in order to make the next wonderdrug. Yes, the shareholders are making a profit from illness, but without their investment that cure would not have been developed at all. There are also issues about third parties making 'copycat' drugs once someone has paid the development costs. That's a whole other issue.

Putting the nitty-gritty arguments about individual sectors of the economy aside, what really annoys me about this tendency to see shareholders as evil is the fact that it's share dividend and capital growth that pays for things like pensions. If you have a pension, you are indirectly a shareholder.

It's true that there are corporations which do not 'play nice' and seem to exhibit the short term view of maximising shareholder profit only. Guess what? These are corporations which, unless they have a monopoly (which is another matter) tend to die. Whilst it is the long term aim of a company to maximise shareholder return, this in turn gives rise to the aim of 'pleasing the customer'. It's in shareholders' interests for the company to please it's customers. Though the sole aim of the company is to maximise shareholder returns and a company which fails to supply what customers want, in the way they want it, will soon not have customers and fail. The message here is that if you want better interest rates and terms from your bank, be prepared to move your account - it's easy these days, they do all the paperwork for you.

Of course, I'm not saying that organisations with shareholders are whiter than white. Of course not, I'm simply saying that they're not necessarily evil.

This 'shareholders are fat cats' outlook allowed Gordon Brown to remove some tax benefits for dividend income on shares around a decade ago. This was reasonably popular at the time, presumably as it was seen as targeting the rich. However, it had a direct impact on the success of pension funds, and the subsequent difficulties which some have experienced.

As you've no doubt realised, the demonisation of shareholders is really annoying me. Shareholders are regular people, like you and me - even if they haven't bought shares directly. It's real people, investing in businesses which provide jobs and pay taxes. It's people putting their own money at risk - of course, they're doing it in the expectation of a reward - and why not? After all, that's why people save money in savings accounts...

Giving money to a good cause is called 'Charity'. Companies are not charities, nor should they be.

Disclosure: Yes, I have shares. The only company mentioned above that I directly have shares in is Tesco (though I will have an interest in FTSE100 companies via a tracker).