Discreet, and devoted to dialogue


The mention of the rumbustious British Gas annual general meeting injects a sudden note of agitation into Geoff Lindey's voice. The size of the pay package of Cedric Brown, chief executive of British Gas, is not the reason, however. It is because the whole, very public, argy-bargy should never have been allowed to happen. "Those who claim the British Gas AGM as a success for shareholder democracy are the same people who describe the First World War as a success for diplomacy," Mr Lindey says. "What we saw was a classic example of the confrontational style of corporate governance, and that means failure on both sides."

If that all sounds suspiciously like calling for the chaps to get together behind the scenes to sort out problems, then Geoff Lindey would hardly demur. For discretion has long been the hallmark of the most powerful group of investors in Britain - the trustees of the vast pension funds, and the professionals they employ to manage them. Geoff Lindey, a hirsute Scottish mathematician, is chairman of the investment committee of the National Association of Pension Funds, which brings together occupational pension funds. The managers of these funds have pounds 300bn to invest, and, with some 35 per cent of UK equity in their portfolios, are the real, albeit usually faceless, owners of Britain plc. Geoff Lindey is also a practitioner, as head of UK institutional investment, with pounds 29bn in funds at the London office of JP Morgan Investment Management.

The heat generated by the row over executive pay, and what the big institutional shareholders are doing about it, is now singeing the eyebrows of many of these paragons of discretion. There is a growing popular cry that they should come out into the open and kick managerial ass at every opportunity. Geoff Lindey is determined to remain calm, but not because he is wedded to discretion for the sake of it.

His job at the NAPF constantly puts him on the public platform, urging institutional shareholders and fund managers to be much more active and open in fulfilling their responsibilities towards companies they have invested in. But there are ways of doing this. "Confrontation in any form of enterprise is damaging," he said. "What works is a dialogue between big investors and companies that continues through good times and bad."

Even though he works for an American house, Geoff Lindey has mixed feelings about the prospect of US pension fund giants bringing their more aggressive ways to the UK corporate scene. The California Public Employees' Retirement System (Calpers) - more than pounds 50bn of assets makes it the world's biggest pension fund - has a fearsome reputation for publicly targeting under- performing companies, warning managers to shape up or shift out. Calpers wants to bring its campaigning methods to Europe. "I would hope that when these funds come to Britain, they take account not only of the fact that the law is different, but also the practice."

The recent tempestuous departure of the Saatchi brothers from the advertising group they founded, prompted by David Herro, a Chicago-based fund manager, is proffered as a cautionary example. "The handling of that affair was extremely unfortunate. Some UK institutions had been talking to Saatchi behind the scenes and there was a good chance something less than disastrous could have come out of it."

While defending the British system of corporate governance as better than anything the Americans or continental Europeans have to offer, Geoff Lindey knows there is no place for complacency. If all were perfect, there would have been no need for all those committees and reports - Cadbury, Myners, now Greenbury - on improving relationships between owners of companies and managers. "There is no doubt that the need to redefine best practice has become more acute recently in the light of changes in public and political opinion." The privatisation of the utilities and the resultant popular anger at the way in which the remuneration of their senior executives has moved in a sharply different direction from the pay of the bulk of the British workforce has had much to do with these changes.

Mr Lindey is convinced that most big institutional fund managers do take their responsibilities towards the companies in which invest more seriously than is appreciated by outsiders. Investment managers will tend to meet the executives of these companies twice a year to discuss broad issues of strategy and performance objectives. If there really is a problem, it is not unknown for concerned big investors to band together and make management an offer it cannot refuse, well away from public scrutiny, of course.

Mr Lindey is a vehement campaigner for pension fund trustees, or the institutional managers to whom they have delegated powers to exercise their votes at annual meetings. But he is strongly opposed to making shareholder voting by pension funds mandatory, as is the case in the US. Stirred by the executive pay furore, the Conservatives and Labour appear to be toying with ways of being seen to be tougher on shareholder responsibilities.

"Mandatory voting is not the same as responsible voting. What we all want is pension fund trustees to vote of their own volition on issues that interest them, but also having the right to abstain. On the most important issue of all, who should govern the country, we are not forced to vote."

The highly emotive public row over pay has, in Mr Lindey's view, also thrown up misconceptions. When the votes are counted at tendentious annual meetings, such as British Gas, there has been a tendency to blame fund managers for the fact that management got off without being censured. But the real owners, the shareholders, are the trustees of the pension fund who employ those fund managers.

"If you really believe, as some people appear to, that the only problem is executive pay, that is a serious misunderstanding," Mr Lindey says. "The real problem of British industry is that its competitiveness has been deteriorating since the war. Pay is important, but it is only a tiny fraction of what shareholders need to look at. They should be constantly asking the managers of companies 'Are you world-class? If not, what are you going to do about it?'"

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