Our Money, Our Business: Building a more accountable investment system

Yesterday evening I went to the launch of two new reports by ShareAction at the Nuffield Foundation in central London. Chaired by their CEO, Catherine Howarth.

Christine Berry from ShareAction presented on the reports "Our Money, Our Business: Building a more accountable  investment system" and "Engaging savers with stewardship and responsible investment".

Christine argued that in light of pension auto enrolment we need to revisit ideas such as those expressed in the book by David Pitt-Watson, "The New Capitalists", since there will now be a huge expansion of share owners. However, at the moment share owner governance is a "dead duck" and we need to reassert the legitimacy of shareholders as owners. We also need to counter the idea that no one is really interested in what happens to their savings.

Research by the Pension Trust (whose chair Sarah Smart was sitting in the same row as me) suggested that its members were not that interested in whether their fund was invested in the traditional "sin stocks" (such as tobacco) but were interested in environmental issues and labour rights.

The first speaker was Mark Fawcett from NEST who pointed out that in modern day Direct Contribution (DC) schemes, savers are exposed to all the risk then it is likely that members will have to take a more active interest in their savings (whether they like it or not).

Roger Urwin from advisers, Towers Watson, was concerned that the reports were important but maybe heavy on aspiration and light on what could be catalysts to bring about change.

Charlotte Black, from high net worth private investor manager, Brewin Dolphin, thought this was an important issue and could show the good side of capitalism but her 120,000 investors had never used the proxy share voting system she had put in place.

My question to the panel was that we need to have better and stronger representative democracy by a elected trustee based model. Advisers are very important but they do not have the fiduciary duty or mandate that elected member nominated trustees will have. Saying that, trustees do have to raise their game and become better trained and more assertive but they do need support.

(good luck to Christine who is soon leaving ShareAction for a new job.)

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.