Jeremy Warner: Myners wants to force investors to be more engaged

Outlook Lord Myners, the minister for the City, made an appropriate stand-in guest speaker for the Investment Management Association's annual dinner the other night, because the man who was meant to give the speech was none other than John McFall, chairman of the very same Treasury select committee of MPs which has just issued a scathing report on Lord Myners' handling of Sir Fred Goodwin's pension. In it, Lord Myners is accused of naivety and failure to grasp the issue.

Inevitably, Lord Myners was determined to take a tit-for-tat dig at now tainted reputation of members of the House of Commons. Mr McFall's speaking fee had obviously risen beyond the means of the IMA, he joked. Yet even he felt inclined to agree with one of the committee's core observations: that the banking crisis amounted to a massive failure in corporate governance in which institutional investors were directly culpable. These failings were very much the subject of Lord Myners' speech. The peer is a former fund manager himself and has been banging on about such shortcomings ever since 2001, when he penned a review of institutional investment for the Government in the wake of the last big systemic failure in corporate governance practice.

As he points out, market pressures and the structure of corporate share ownership present major challenges for shareholder engagement. Many fund managers do not believe in engaging with companies as a matter of principle. Instead, if they don't like the look of a company or its management, they simply vote with their feet and sell. Quite a few of them did just that in the run-up to the bank crisis, when to the bemusement of bankers, the sector substantially underperformed the rest of the stock market. Some investors obviously recognised the illusory nature of the boom in banking profits.

In any case, the chain linking the ultimate beneficial owners of the shares with the company itself can be a long and diffuse one which moves the focus of behaviour from that of an "owner" to that of an "investor". Institutional investors are expected to exhibit the values of an owner but are in fact incentivised to act as investors, with performance scrutinised on a quarterly or even more regular basis. Most institutional shareholders, Lord Myners points out, are not set up to act like owners. The result is what he has characterised as "the ownerless corporation" which is reflected in fragmented share registers and inconsistent investor engagement.

So much for the diagnosis, but what to do about it? Lord Myners says the fund management industry ducked the necessary reforms last time around and instead opted for an inadequately policed "Combined Code". His suggestion of a legally binding set of fiduciary duties and responsibilities was ignored. Space constraints prevent me from listing all of Lord Myners' suggestions (you can find his speech on the Treasury website), but I particularly like the idea of using dividends as a measure of corporate health and progress, and making them an important determinant of performance pay for directors.

It is not possible to know yet whether Sir Stuart Rose, the Marks & Spencer chairman, qualifies for a bonus this year, but I'm willing to bet that if he does, the decision to slash the dividend will have no bearing on it. The vote against directors' bonuses at Shell demonstrates that, even when shareholders do engage, it is frequently unsuccessful. The board was warned not to, but still it proceeded.

Yet Lord Myners saved his real ire for the failure of institutional shareholders adequately to challenge and check the empire-building takeovers of their boards. Most research on takeovers is unambiguous – they end up value destructive for the offeror company. The banking crisis has proved it all over again, first with Royal Bank of Scotland's acquisition of ABN Amro and then with the equally hubristic takeover of HBOS by Lloyds TSB. When will shareholders learn and put a stop to all this nonsense?

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle 0 Man United 1: Last minute strike seals precious victory
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
Arts and Entertainment
Seth Rogan is one of America’s most famous pot smokers
filmAmy Pascal resigned after her personal emails were leaked following a cyber-attack sparked by the actor's film The Interview
Benjamin Netanyahu and his cartoon bomb – the Israeli PM shows his ‘evidence’
ebooksA special investigation by Andy McSmith
Arts and Entertainment
80s trailblazer: comedian Tracey Ullman
Life and Style
A statue of the Flemish geographer Gerard Kremer, Geradus Mercator (1512 - 1594) which was unveiled at the Geographical Congree at Anvers. He was the first person to use the word atlas to describe a book of maps.
techThe 16th century cartographer created the atlas
Arts and Entertainment
Stephen Tompkinson is back as DCI Banks
tvReview: Episode one of the new series played it safe, but at least this drama has a winning formula
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot