Call for “thorough investigation” into monitoring role of shareholders

There’s been a call from a senior European corporate governance figure for a “thorough investigation” at European Union level of the role institutional shareholders in overseeing companies in the wake of the financial crisis.
“We need a more thorough investigation of the key monitoring role shareholders can play,” said Baroness Lugart van den Berghe, executive director of the GUBERNA Belgian Governance Institute and member of the Belgian commission for corporate governance.
“Shareholders have to fulfil a much more active management role,” she said in an address to a Corporate Governance conference organised by the Institute of Chartered Secretaries and Administrators (ICSA).
Referring to the development of the European Union’s Green Paper on Corporate Governance, due next month, she said company boards have not been consulted in the process unlike institutional investors. “It is a pity that boards have not been consulted when developing the green paper.”
She said the proposals underplay the role of macro-economic factors and the “unsatisfactory role” by other players such as regulators, financial supervisors and shareholders. She feared an inappropriate policy response to an inappropriate analysis.There was a “huge discussion” underway at EU level on the role of board evaluation, an area where the UK is in the lead. “Evaluation the best way to improve behaviour,” she argued – adding that there is confusion in the Green Paper between role of board and senior management.
In the run-up to the financial crisis, many investors did not invest time and resources to provide effective oversight, she argued. In response she called on the EU to take a “more nuanced approach” that differentiates between short-term holders and long-term shareholders who behave as owners.
A topic at the event was the outlook for the “comply or explain” regime. Alan MacDougall, managing director or proxy firm PIRC, said he would not be bothered if it were to be replaced by a more stringent regulatory approach. He referred to the new Irish government’s proposals to introduce a binding corporate governance regime for all listed companies.
He complained that shareholders have not been active in engaging with the regulatory debate and disagreed that the notion that asset owners and managers had pressurised banks to take on more risk in the run-up to the financial crisis – pointing to the part played by investment banks. He added that PIRC plans to publish an analysis of every pay vote in 2010 next week.