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Myners accuses investors of ‘leaseholder’ mentality, pre-empts UK governance report
Governance, exec pay, voting systems and takeover law in UK City minister’s sights
Lord Myners, UK Financial Services Secretary
Institutional investors have adopted a ‘leaseholder’ mentality in their ownership of companies, according to Paul Myners, the UK Financial Services Secretary and author of the influential 2001 Myners report on institutional investment. In a speech to the UK Investment Management Association (IMA) last week, Myners said this had led to what he called “the ownerless corporation”, reflected in fragmented share registers and inconsistent investor engagement. “The true owners, for instance pension fund trustees, have been intermediated out of the story,” he told the investor audience. He added: “To put it simply: most institutions are not set up to act as owners; they don’t have the mindset of owners and are not incentivised by their clients to act as owners.” Myners stoked debate around the forthcoming publication of a major evaluation report early next month by the Institutional Shareholders Committee (ISC), created by the UK Treasury to act as an investor governance vehicle following Myners’ 2001 report, but which the Minister said had developed as a “rather low profile entity”. The ISC is run jointly by the Association of British Insurers, the Association of Investment Companies, the Investment Management Association and the National Association of Pension Funds. Myners said: “It enjoys the support of a number of trade
associations but has no permanent secretariat or budget. The Combined Code of Corporate Governance states that institutional shareholders should apply ISC principles and goes on to say that these principles ‘should be reflected in fund manager contracts’. Reality has fallen somewhat short of ambition. The ISC has made little progress in reviewing compliance and achievement or revisiting its core principles in the light of experience, and pension fund trustees have been slow in pressing for progress, including inserting formal and binding obligations in all their agreements with their fund managers (or, at a minimum, codifying what can and cannot be expected from their fund managers in respect of governance).” Myners favours bringing the UK into line with the United States’ Employment Retirement Income Security Act (ERISA) of 1974 which codifies fiduciary responsibilities and obliges investors to explicitly vote on all AGM matters at companies they own. He has said he wants to see shareholder governance activity “hard-wired” into fund management mandates. Some UK investors say ERISA has become a time consuming, box-ticking exercise for US investors across a huge range of corporate issues. The ISC, for its part, has said it is testing an enhanced technology-based platform to promote more vigorous investor governance
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