A world with fewer arms is a necessary condition (albeit not sufficient) to implement a peacebuilding process on the global stage.

An aspect which is usually not enough highlighted is the listing on stock exchange of arms manufacturers. Generally, the listing on stock exchange of a business, substantially influences actions undertaken by their management. Indeed, the stock exchange listed businesses are encouraged to appeal to investors.

Therefore, management must establish credible and transparent industrial plans, ensuring short- and medium-term profit. In addition, private incentives are also relevant for management in listed firms. The former is particularly true when a separation between ownership and management occurs. In fact, the management tend to maximize private return through manipulation of compensation schemes, that is given by high-risk corporate decisions.

Economists and experts wonder what the optimal mechanism could be to be applied to effectively bind managers, avoiding market-incentives to overcome the overall direction given by main shareholders. These set of issues and dynamics, which are outlined by years of research, constitute essential drivers to interpret the behaviour of stock exchange listed firms, as well as representing those issues which different model of governance aim to overcome.

Another relevant issue in stock exchange listed firms is the influence of minor shareholders, specifically institutional shareholders. Although these are not taking part to decision-making processes, in some cases, they can influence them. This pool of issues turns out to be even more problematic when arms manufacturers are considered. Oftentimes, arms manufacturers had major limitation given by national security requirements, and by national foreign policy’s needs.

Based on the former dynamic, a limitation of potential profit should occur. When respected, agreements limiting arms export (i.e., ATT) should decrease the contingent market size, negatively affecting industrial plan and expected business performance. These limitations should pose a substantial limitation on management activities, and on the minority shareholders.

“In light of the exacerbation of many conflicts, the time has come to propose a global campaign to delist arms manufacturers from the stock exchange.”

It is not possible to exclude those challenges set out above (private incentives, dangerous choice from the management, and minority shareholders influence) could arise even when limits imposed by public authority are applied. To simplify the concept, it is not possible to exclude that arms manufacturer management would be influenced from the need to appeal to investors, by the existence of private incentive linked to own compensations scheme or by minor shareholders influences specifically from institutional investors.

Practically, these set of aspects could stimulate behaviour and choices that aim to maximise the short-term economic-financial results, which lead to a need of higher sales level. This could lead to a positive trend in arms sales at global level creating a threat to peace. In light of the exacerbation of many conflicts, time is come to propose a global campaign to delist arms manufacturers from the stock exchange. If government will decide to implement this specific action, they would drastically decrease those incentive to maximise arms sales. By removing arms manufacturers from the stock exchange, the pre-existing limitations would get more effective. A delisting operation at global level would allow states to be more effective in building peace.



Professor Raul Caruso

Writer, Economist on Peace

Economists on Peace

Economists on Peace is an editorial collaboration between the Institute for Economics and Peace and Economists for Peace and Security that aims to stimulate global discussion and shared learning on economic aspects of peace and conflict leading to appropriate action for peace, security and the world economy. Economists for Peace and Security is an international network of economists, set up to establish economics of peace and security as a fundamental part of the academic discipline of economics.