Banham fuels flames of governance row

Sir John Banham, the chairman of Whitbread and the former head of the CBI, further damaged already strained relations between business and the City yesterday when he claimed the hardline stance on corporate governance adopted by fund managers was hypocritical, had achieved nothing for investors and belied their own poor performance records.

"Good governance of companies is important," Sir John said yesterday. "But investors have the right to expect, given the interest rate environment, a return from equities of between 6 and 8 per cent. Does corporate governance lobbying do anything to facilitate that? At present, it does nothing." Sir John added that if executive pay really was excessive, it could be curbed through government tax policies.

He said fund managers themselves, as well as the boards they lambasted, were guilty of taking rewards for failure, having destroyed value for investors over the past five years.

Sir John said fund managers had become lazy, knew little about the companies they invested in and were content to track the index rather than strive for outperformance.

"This just hasn't delivered the goods. A fund manager should be able to spot the 20 stocks in the FTSE 100 that will outperform. Corporate governance is not helping fund managers make those decisions. There is no relationship between good governance and good returns," Sir John said.

Fund managers hit back at Sir John's criticisms yesterday, saying corporate governance lobbying from shareholders was a positive step for investors. Robert Talbut, the chief investment officer at Isis Asset Management, said: "Our experience is that many senior executives welcome the dialogue that is taking place between shareholders and company boards. It is healthy to have this dialogue. You cannot turn back the clock to when companies never spoke to their shareholders." Mr Talbut also said it was wrong to suggest that fund managers had destroyed value for investors. "That is a gross oversimplification," he said.

Sir John also singled out Standard Life, whose fund management arm has taken a lead on corporate governance issues and led many investor revolts on pay. "Look at what their board was paid last year," he said. The group suffered a humiliating backlash from policyholders last week at its AGM when 43 per cent voted against the board's pay awards. "The differential between the pay awards to the top five people in a company keeps on getting bigger, so what has corporate governance achieved?" Sir John said.