Mark Austin interview: The City needs a culture change – we have to celebrate success
Canada is at an “inflection point” reckons the man who wrote last year’s capital raising review – but a year on, with Arm gone and others plotting New York floats, there remains much to do
You’d be forgiven for thinking the Square Mile is in rather dire straits at the moment. Firms are packing their bags for New York, Jeremy Hunt has ordered a review of the London Stock Exchange’s attractiveness and yet another investigation has been kicked off to try and breathe some life into London’s sorry-looking markets.
The City has been plunged into something of a period of soul-searching introspection. But for Mark Austin, author of the last government-sponsored capital markets deepdive, the deluge of bad news may have been just the wake-up call it needed.
“When I first started working on the Hill Review [of listing rules] in the final quarter of 2020, very often the response we got was ‘really? Reform? Do we need to?’ Now the conversation has completely moved on,” he tells City PM
“No one doubts we need to reform to stay relevant and that we’ve got to reform meaningfully, and be bold and brave in doing that.”
For Austin, a partner at law firm Freshfields and former Sunday Times journalist, the City is at an “inflection point” rather than on life support. He’s confident that regulators, ministers and firms are on their way to restoring some of its former international glory.
Review and reform
Austin has been a central figure in the various turnaround efforts launched in the City over the past three years.
Ministers smelt a threat to the UK’s international standing post-Brexit and have been hurriedly looking to shore up its status with a slew of reviews – first with Lord Hill’s review of the listings regime, then Ron Kalifa’s analysis of the fintech sector, and most recently Austin’s assessment of the secondary capital markets, which reported in July of last year.
Next up is a review of the research investment landscape, headed by Hogan Lovells lawyer Rachel Kent.
The sprawling reports can seem sometimes forgotten after the big fanfare of their publication, but Austin says they have been keenly received by regulators and political figures.
“They’ve definitely got momentum, all the reviews have been followed up on and there is good progress on all the recommendations,” he says. “Although it’s fair to say that the strands are so multifarious and there’s so much to do, and they’re all interlinked, that it can feel like a lot of activity gets a bit lost in the noise sometimes, even if it’s not being lost in reality.”
He argues that the recommendations of the Hill Review, which included introducing dual class share structures and slashing the ‘free float requirement’ (how many shares need to be in public hands), will by the end of this year create a “listing regime that bears comparison with any other jurisdiction”.
The Financial Conduct Authority has picked up reform across the board with vim, he says, and all the reviews, while seemingly disconnected cogs, are creating a well oiled machine behind the scenes.
Culture troubles
But if a few further regulatory tweaks will put London on a par with the world’s premier international hubs, why has it been afflicted with such sickness?
Austin says the problems are threefold. Firstly, the standards governing the market can be restrictive, with bosses of publicly listed firms forced to grapple with more cumbersome corporate governance and stewardship codes, all while being held back from the same bumper paypackets they might rake in elsewhere.
We’ve got to get away from tall poppy syndrome
“That’s harder because it’s ‘hearts and minds’ to some extent and a mindset point, it’s not something that government has complete agency to shift the dial on,” he says. “But it does need shifting and we do need to reframe the conversation, because it is part of the sometimes negative perception of overly prescriptive approaches.”
Even more deep rooted and mercurial than that though, he argues, is a pervasive culture of ‘tall poppy syndrome’ – the urge to chop down or undermine those who seem to be rising fast.
“[We need] that more positive American mindset of celebrating success rather than denigrating it, and if people fail, saying ‘well good on you, try again’, rather than indulging the British tall poppy syndrome and jealousy,” he says.
“It’s moving from an incumbent mindset to more of a growth, insurgent mindset as a jurisdiction, as a country.”
The performance of some growth firms that have shifted onto London’s markets in recent year is a reflection of that British scepticism, he says – pointing to the relentless bashing of a certain Mr Moulding of THG.
Liquidity
But cultural and mindset issues aside, there is of course the question of cash. London’s investors have long been accused of not understanding growth and failing to back firms that won’t pay an immediate dividend, and firms on these shores lack the blockbuster valuations of their stateside counterparts as a result.
Those are in some ways being addressed, Austin says. Moves from the Lord Mayor of London this week to coax more pension cash into growth firms could be part of that, as will the upcoming investment research review, designed to boost the strength and depth of research into UK-listed firms. But even then London must set its ambitions realistically, Austin argues.
“We should be realistic, we’re not going to overtake New York in terms of volume or depth and we’re not trying to, but we can become – or remain – the default, independent financial centre outside that,” he says.
“If you improve the liquidity, the valuations will improve over time, and we’ll get more investors coming back into the market, with more tolerance for risk than traditional investors in the UK markets.
“The virtuous circle will start turning, including on perception issues, and things will start to fix themselves.”
It sounds simple enough. But as the City is buffeted by bad news and glum faces abound, making those pieces fall into place is looking like a tricky battle.