David Prosser: Everyone is an activist these days
Thursday 20 August 2009
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.
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 A politically correct lefty goes to see Top Gear live – you'll probably believe what happened next
- 3 Young Preston fan has play-off hero Jermaine Beckford's shirt stolen from him at Wembley - which then appears for sale on Gumtree
- 4 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 5 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
A nation of inequality: How the UK is failing to feed its most vulnerable people
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...