Patricia Hewitt will warn the UK's major shareholders today that they must play a more active and transparent role in the companies they invest in.
The Secretary of State for Trade and Industry plans to make reform of institutional investors the next step in a series of measures that has already seen greater powers for shareholders over executive pay and a review of the role of non-executive directors.
Although Ms Hewitt refrained from threatening fresh legislation, it is understood that proposals on further reform will be part of Labour's manifesto for a third term.
In a keynote speech in the City of London, Ms Hewitt will warn that big investors should face the same tests that directors of major companies must comply with. "I have some sympathy with those in the boardroom who ask when will the necessary requirements of transparency and accountability be reciprocated by those in the investment community," she will say. "This has to happen. The scales are weighted too much in favour of one side. Our economy needs institutional investors, pension fund managers and trustees ... to deliver their side of the corporate bargain."
She will tell the audience at the annual stewardship and performance seminar organised by Hermes, the fund manager, that an efficient economy needed active owners, rather than shareholders who took "a pretty detached" attitude towards their investments.
She accuses some shareholders of continuing to support inadequate management and others of "simply pulling the plug" and switching investments. "By insisting on a change in management, active owners can create real value for investors and future pensioners by replacing bad management rather than walking away from a bad one," she says.
And in her first comments on the Carlton/Granada merger debacle that saw shareholders evict Michael Green as chairman of a merged ITV, she said she offered no judgement on the decision. But she adds: "I will stand up for the rights of shareholders - as the ultimate owners of a company - to take this sort of action."
Ms Hewitt emphasises that the Government should not "force an increase in activism" but hints that she wants the City to reform itself. She will highlight the example of the Co-operative Insurance Society that has an on-line service displaying its voting record and the reasons for its decisions.
She will praise the principles set out by Hermes, which manages £41bn of funds, that stock market companies should be run for the "long-term interests of shareholders".
Ms Hewitt will condemn the current 50 per cent voting level at annual general meetings as "simply unacceptable"."Millions are people are disenfranchised," she will say.
She is expected to rule out mandatory voting as "not sensible" but wants to see an improvement on that count and in terms of transparency and accountability over their decisions.Reuse content