The current system of shareholder engagement “does not work” and is the answer to many of the problems affecting UK corporate governance, according to a group representing individual shareholders in the UK.
ShareSoc said shareholder committees should be mandated for FTSE 100 companies now and the issue revisited after two years to consider whether committees should be imposed on all listed and AIM-listed companies.
The views come in ShareSoc’s response to the government green paper consultation document on reform of corporate governance.
ShareSoc said: “The informal nature of most current engagements, of meetings (cosy chats?) behind closed doors, does not work. It is not clear whether different investors are being given the same information, or whether complete or only partial information is being provided.”
The society added: “Ad hoc engagements tend to only occur when a problem arises, and too often fan conflicts rather than resolving them.”
It said ad hoc arrangements also see non-executive directors become involved in discussion at too late a stage.
The great advantage of shareholder committees, according to ShareSoc, is that members would receive the same information at the same time, including each other’s views.
“Currently, the different views of different investors create a very ‘messy’ backcloth in which to engage. Companies complain they have to trade off one investor’s requests against another and the end result is too often a camel rather than what is needed,” said ShareSoc.
The shareholder group said the ownership structure for listed companies is also a problem. It said: “The bulk of public company shares are controlled by institutions whose interests are often not aligned with those of the beneficial owners.”
ShareSoc added: “The proliferation of shareholders who are not directly interested in the companies in which they own shares — for example, intermediaries, ETFs, tracker funds and other index-related funds — corrupts the governance and stewardship process and the associated governance checks and balances. This is exacerbated by stock-lending.
“This prejudices the concept of corporate governance based on shareholder oversight, and places too much influence over our companies in the hands of traders — the ultimate cause of short-termism.”
Related Posts
-
September 12, 2023
AGM season review reveals that remuneration is still the topic that attracts most shareholder opposition in Europe.
-
September 7, 2021
Spain saw the greatest opposition to remuneration-related resolutions, with 60.6% contested—an increase of 33.2% year on year.
-
January 7, 2022
This year is the first time since 2011 that the median FTSE 100 CEO has had to work into a fourth day to make the average annual income.
-
July 19, 2021
In H1 there have been 38 significant shareholder votes against individual directors, the lowest six-month total in four years.
