Saturday, March 17, 2012

The Enlightened Shareholder

Last week I went to the launch at the House of Commons of the report "The Enlightened Shareholder: Clarifying investors'
fiduciary duties" by Fair Pensions.

The speakers included "Professor John Kay, who is currently leading a review which looks into long-termism in the UK equities market; Saker Nusseibah, Acting CEO of Hermes; Roger Urwin, Global Head of Investment Content at Towers Watson and Baroness Jeannie Drake".  Fair Pensions CEO, Catherine Howarth, chaired the meeting and its author, Christine Berry presented the report.

The big issue is whether or not the "fiduciary duty" of shareholder representatives (and trustees) ought to be legally redefined to deal with "crony capitalism and excessive executive pay". Pension trustees (and member nominated representatives) still come across advisers who tell them (completely wrongly I think) that  their only role is to "maximise returns" of the scheme regardless of the impact it has on stakeholders, the wider economy and even the long term interests of the scheme. Which is clearly stupid and frankly bonkers. But it happens and it needs to be dealt with.

I think this problem is widely recognised but there is the usual dispute about the solution. Should this be by statutory regulation or some sort of a voluntary code? As pointed out in the debate we have tried the voluntary approach for a long, long time. It has clearly failed due to agent self interests and conflicts. We need to regulate.

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