David Prosser: Everyone is an activist these days


Outlook New guidance on shareholder activism from the Financial Services Authority closes down one more excuse that institutional investors have used to explain their failure to properly exercise shareholder responsibilities.

One fear for activist shareholders and hedge fund groups has been that by acting together on corporate governance concerns they might be accused of breaking City rules on market abuse. These prevent shareholders getting round stake disclosure rules by keeping holdings in companies small and then acting together for a common goal – a takeover being the most obvious.

The FSA said yesterday, however, that the abuse rules had never been meant to prevent shareholders collectively engaging with companies on "legitimate concerns on particular corporate events or matters of governance". That gives activist shareholders room to act together, as long as they stay within the spirit of the guidance.

Equally important, however, is that shareholders which have not traditionally taken an activist approach can no longer justify their apathy with the argument that in isolation their holdings are too small to have an impact. Even institutions with only a handful of shares are now free to work with other investors in the company.

This is an important boost for Sir David Walker's plans for company owners to become more engaged with management, following the banking crisis.

The crunch was a watershed for shareholder activism, exposing the way in which pension funds, insurance companies and others have for years just rubber-stamped the activities of the businesses in which they invested.

Indeed, the City has traditionally regarded activist shareholders as mavericks. Investors with genuine corporate governance concerns have often preferred to sell out of companies rather than force management to address their gripes.

That was fine in the good times. So what if you thought an executive was overpaid, as long as the business remained profitable and paid its dividends? Who worried if the chief executive seemed poorly qualified for the post, if the company's share price rose anyway?

The banking crisis, however, highlighted that the impact of poor management – and shareholders' failure to challenge it – could be brutal. Suddenly, the oddballs who dared to question Royal Bank of Scotland's pursuit of ABN Amro, for example, didn't look quite so weird.

Shareholders make misjudgements too. But if managers know that their decisions and performance will be scrutinised by those who have the power to punish failures, they're less likely to act rashly in the first place.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links