The Liberal Democrat Treasury spokesman, Vince Cable, called yesterday for Sir David Walker's inquiry into banking governance to be extended in the wake of Friends Provident's capitulation to Clive Cowdery's Guernsey-based investment company Resolution under pressure from its institutional shareholders.
Dr Cable said: "This appears to be another example of the failure of British corporate governance. Institutional shareholders seem to feel unable to exercise stewardship because of conflicts of interest and cross-share holdings. This and other examples suggest that the Walker review should now look at the failure of institutional shreholders to act properly in a wider context than merely the banks."
Friends Provident had initially resisted Resolution's advances, citing concerns about its corporate governance. However, it is understood to have been told to set these aside and focus on value.
Several leading Friends Provident shareholders also feature prominently on Resolution's shareholder register including Aviva and Scottish Widows, part of the partially nationaised Lloyds Banking Group. They are the top two shareholders in both companies.
Sir David's interim report called on shareholders in banks to behave like "responsible stewards" and act more like owners of the businesses in which they invest. He was critical of the way institutional shareholders have operated but his review only applies to banks. Yesterday, Friends insisted that its concerns had been allayed by an examination of Resolutions "business model and structure through engagement with Resolution and through discussion with, among others, the Financial Services Authority and major shareholders of both companies".
An ill-tempered Mr Cowdery dismissed concerns about the offshore domicile of Resolution, saying it was simply about "efficient tax planning". He also defended the millions he and his teams could reap from the deal – they are entitled to 10 per cent of any upside after paying off their backers' initial investments.
"Resolution is a partnership of institutional investors and Resolution's management team. We have put up £50m between us – they have put up £660m. We have put £20m into this deal through which we will buy life insurance companies and consolidate them. The profits will be split 90:10 after we have paid off the initial investment. That's not a private-equity style deal. We are going to risk our own money in this."
Mr Cowdery said there were nine potential targets for his business in Britain's life insurance sector and he hoped to have completed another two deals before bolting the companies together and spinning them off in as little as 18 months. Resolution will then move on to other projects. Shares in Resolution closed down 6.75p at 82.25p, while Friends Provident closed down 2p at 73p.Reuse content