Paul Myners, the UK Financial Services Secretary and author of the influential 2001 Myners report on institutional investment, has called for investors to form governance “coalitions” in order to thwart what he called the potential for company boards to “run amok” and repeat some of the irresponsible practices on business strategy and pay and bonuses that contributed to the credit crisis. In a speech to the UK National Association of Pension Funds conference in Edinburgh yesterday (March 12), Myners said the UK government was looking at ways to push investors to collectively challenge companies more vigorously and be active owners. He said he would bring investors together with corporate non-executive and executive directors for a meeting later this year designed to see “what the gaps are” regarding greater investor scrutiny of companies. Bringing investors together “in concert” on serious governance concerns, he said, would get around the problem of dispersed equity ownership. This, he said, often meant that concerned shareholders were too isolated with small individual share stakes to be able to lobby effectively for change in company practices, while companiescomplained of hearing conflicting views from shareholders. Myners said the government was concerned that shareholders were too “passive” as a result, often accepting corporate management decisions without challenge. He called on investors to lobby against any potential regulatory problems in acting in concert on corporate governance issues. Significantly, Myners said he would be pushing for the UK to adopt principles similar to the ERISA guidelines in the US where institutional investors are legally bound to ‘engage’ with companies by explicitly voting on all AGM matters. He said he believed the Institutional Shareholders Committee, introduced to promote shareholder engagement in the UK following his 2001 review, had “not done a great deal” and that he wanted to see shareholder governance activity “hard-wired” into fund management mandates. He also questioned whether asset managers were ‘too close’ to companies to be able to act as proper governance agents. Joanne Segars, chief executive of the NAPF, said the association was planning to test an enhanced technology-based platform for more vigorous investor coalitions in the
next two to three months. In an earlier speech at the NAPF conference, Hector Sants, chief executive of the UK Financial Services Authority (FSA), also encouraged institutional investors to band together as company owners to lobby on issues of “governance, risk management, business strategy, and compensation.”
The remarks come days before the FSA, which has come under significant fire for its so-called light-touch regulation stance on financial services, delivers a review and suggested policy changes on the credit crisis to the UK government. Sants said investors should particularly focus on the total amounts of executive remunerationand probe company information and directors much more intensely to avoid being spoon-fed information. He said: “A lesson from this crisis must be that greater interrogation of how well a company is managed and the adequacy of its risk controls are all material factors fundamental to investment management. The crisis has arguably been driven among investors by an intense search for yield, a desire to gain as much as possible at a risk-free rate.” One investor in the audience at the conference described Sants’ remarks as “staggering” and said the regulator should have done a better job in ensuring company information was of better quality.