Funds' attitude problem over share voting is
key
The government looks to be losing patience with institutional investors
over share voting, but a change in attitudes to voting is more important, says
Matthew Craig.
Imagine a world economy of the future dominated by around one hundred
massive corporations, which between them control, say one third of the world's
wealth.
If each corporation has 15 executive directors. then those 1,600 men
and women have the potential to wield enormous power over the lives of us all,
whether for good or ill.
From a corporate governance point of view, the worst case scenario is
that tomorrow's business elite reach their decisions in secret, are largely
unaccountable to shareholders and pursue their own aims regardless of any
damage they may cause to the wider world.
Apostles of corporate governance say it has never been more important,
and in the UK too many parties are failing to act.
These failures, particularly the failure of around 60% of pension funds
to vote at company annual general meetings, are attracting intense interest
from the government.
Earlier this year former president of the board of trade Margaret
Beckett called for voting levels to rise or legislation to force action would
be taken. And there are hints that officials are losing patience with the lack
of progress so far. For example, the DTI has commented that the response of
institutional investors to Margaret Beckett's speech last March was "very
disappointing".
Another example is in the challenges for fund managers set out in
November's pre-Budget report from the Treasury.
It stated that the government sees "room for improvement" in the
relationship between companies and shareholders and talked of fund managers
making public their voting policies and how they remunerated key staff.
If the government decides that it has no choice but to enact
legislation in these matters. it would probably not be good news for pension
funds.
So why aren't more pension funds voting their shares and taking more
interest in corporate governance?
No doubt pension fund managers and trustees would reply that they
already have enough on their plate, coping with the requirements of the
Pensions Act.
The professional training of many pension fund managers may also mean
that they do not see political actions as being appropriate.
A more fundamental reason is that the buck is being passed by some
pension funds and some fund managers.
Meanwhile, the fund manager may decide the expense and effort of voting
is rarely justified or may not wish to offend a company's board or may decide
to disinvest rather than try to actively reform badly run companies.
Whatever the reason, it is unlikely to impress a government which sees
supply side reforms as a major part of its economic programme.
Not only do pension funds and fund managers need to ensure they have
the mechanisms to vote, but they have to summon the will to vote. This requires
a sea change in attitudes. from laissez-faire free markets to shareholder
activism.
Legislation may force some improvement in voting, but informed and
responsible voting cannot really be imposed from above.
And if things do not change, tomorrow's world may well be run by a few
hundred faceless corporate executives.
Mathew Craig, Pensions Week
January, 1999
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