Thanks to Duncan, Steve, Michael and Colin for their advice ahead of my gig last night at the Corporate Governance Circle. I was responding to a forthright speech to the always engaging and direct Lord Myners (who, gratifyingly, had also read the post and comments). I knew less about the subject - ‘Institutional Investors – are they the weakest link’ - than anyone else in the room but I think I just about got away with it.
My key point was to link the debate about corporate governance and stewardship to the emergence in 2012 of Personal Accounts. If these succeed – and the RSA has proposals which we think would help to ensure they do – they will create a huge source of regulated funds with the scope to impact directly on how British business is managed and indirectly on the behaviours of other institutional investors.
Although he expressed it in the most positive of terms, Lord Myners’ basic point was dispiriting for those seeking to improve the quality of corporate governance. He told the assembled investors that they already had the power to influence the companies in which they are invested. In typically robust style, he suggested that if company annual general meetings didn’t exist, someone would now be calling for them as the solution to all our problems: ’Hey, why don’t we have meeting every year where the whole board has to attend and at which shareholders can ask any question they want and table resolutions over key aspects of governance?’ ‘You have the power’ said the Lord ‘but the reality is that you choose not to use it’.
I had gone into the meeting thinking the big difficulty in this policy area was the principal - agent problem but I came to see that it is actually a collective action issue. The diffusion of ownership in almost all large funds – driven by modern portfolio theory – means that typically no fund owns more than one or two percent of a company. Why then should they be the ones to take on the onerous and risky business of holding companies to account? Interestingly, no one in the room denied Lord Myners description of the problem or offered a solution.
This morning David Pitt-Watson (who leads on our Tomorrow’s Investor project) and I met with Tory Work and Pensions spokesperson Theresa May to discuss our project and hear her views on personal accounts. She said some very interesting things to which I will return in a later post. But on the way back to John Adam Street I quizzed David on the issues of investor influence. The RSA proposal is for a low cost pension fund delivered through personal accounts but we also claim this fund could have a benign impact on corporate governance and stewardship, helping for example , deliver George Osborne’s vision (elucidated in a speech yesterday) of a more long term investment culture. ‘But how can we be both cheap and influential?’ I asked.
David assures me he has an answer and that it is in the forthcoming Tomorrow’s Investor report. I am looking forward to reading it
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