Some of Britain’s biggest long-term investors have collaborated in acts of shareholder activism to tackle excessive executive pay, poor management and lax corporate governance at London-listed companies.
In a move hoped to have a dramatic impact on corporate culture, an Investor Forum has been created so shareholders can focus action on pay and auditing, and promote long-term, strategic decision-making.
And to give the new structure some bite, the forum is looking to establish an engagement action group at each company, so shareholders can co-ordinate their agitation over poor management, performance and policy.
The forum is backed by three major industry lobby groups: the National Association of Pension Funds, the Association of British Insurers and the Investment Management Association.
Their move follow the recommendations of Prof John Kay, whose review of UK equity markets last year revealed how financial intermediaries and short-termism were distorting corporate priorities, to the detriment of pension funds and other long-term investments.
It also comes as the provisions of the Enterprise & Regulatory Reform Act 2013 increasingly take effect, giving shareholders of quoted companies a binding vote on directors’ remuneration and exit payments.
Taken together, the Act and the Investor Forum provide a potent set of new powers which, in the context of increased shareholder activism over recent years, could establish a greater sense of engagement and responsibility among senior executive team.
But that’s only provided shareholders choose to use these powers. The investor base is not only fragmented, but some large shareholders are reluctant to agitate or co-operate with others. While the dissent of large shareholders tends to grab media attention, boards can usually rely on the support of a majority.
For instance, Standard Life has abstained or voted against BP’s remuneration package at seven of the company’s last eight AGMs, without success. Indeed, at its AGM earlier this year, the BP board won the vote on executive pay with the largest majority in seven years.
But Baillie Gifford partner James Anderson, who chairs the forum working group, believes this is a game-changer. He told the Financial Times: “The Investor Forum will drive cultural change and act as a mechanism for investors to work together more effectively.”