ShareSoc has issued a press release noting our submission to the Parliament BIS Committee Inquiry into Corporate Governance. It requests more power for ultimate investors. Here is a brief summary of the contents (the press release includes a link to our full submission).
We suggest that the goal should be to get more power back to the ultimate investors. This can be achieved by:
– Ensuring that individual shareholders can exercise their rights, even if their shares are held in nominee accounts.
– Providing government and/or NGO support for representative organisations such as ShareSoc.
– Requiring a binding annual vote on the remuneration report and requiring companies to disclose the Pay Ratios.
– Introducing shareholder committees as outlined in the paper by Chris Philp MP “Restoring responsible ownership” so long as a representative of individual investors is included.
The views of individual shareholders tend to be under-represented. Part of the problem is the way that individual shareholders are disenfranchised through the way nominee accounts operate.
Individual investors do not have effective power to curb directors’ pay. Fund managers, who are merely intermediaries in the ownership chain, have usurped this power: but have patently failed to provide effective stewardship. They are responsible for creating many of the current problems, yet to date seem to have avoided blame. Why should we expect them to suddenly change their behaviour? It is time for a strong input from Government and regulators of the London Stock Exchange to change the framework in which we are currently operating. The goal should be to get more power back to the ultimate investors and hence make capitalism work for everyone.
Our full press release on our submission to the BIS Committee is present here: https://www.sharesoc.org/pr83-bis-submission.html
Roger Lawson 25/10/2016
I think this submission is good, and would advocate just one addition. I believe there should be a requirement on the managers of collective vehicles such as unit and investment trusts to canvass their underlying investors and vote accordingly. Otherwise, they remain as disenfranchised as owners of individual equities in nominee accounts.
The risk that asset managers’ interests may be aligned with company managers rather be their clients is well established and fixing it would do a lot to make both groups more accountable.
The Times has of course been running a campaign on the first point, but the logistics and practicality of doing this are questionable.
Roger Lawson.
By “so long as a representative of individual investors is included” I suspect you have in mind a representative of Sharesoc or a similar organisation, and if so I think it would be better to say so. I doubt that there can be such a thing as a representative of individual investors in general as their interests and views are likely to vary enormously. They are also in many cases likely to have little experience or understanding of the issues – for example, what basis would most small shareholders have for judging whether a pay package is reasonable?
Also, if someone is supposed to be a representative of shareholders in some formal way, in what way would they be held accountable by their constituency? How will they be selected, and if necessary removed? Will they bear any legal liability? I also wonder about the practicality – if this applies to all listed companies that’s a lot of people needed.
You are right in that we would propose that ShareSoc could act to represent retail investors, but we did not want to suggest we would have any monopoly in doing so and were reticent to about puffing our own capabilities. Hence the wording of the press release as issued.
Roger Lawson