Widows seeks pledges from firms on insider talk

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The Independent Online
SCOTTISH WIDOWS, one of Britain's largest institutional investors, is asking companies for a formal undertaking that they will not disclose price-sensitive information in the course of meetings with its fund managers.

The request, which Scottish Widows described as 'good housekeeping' follows the introduction of tough new laws on insider trading in the Criminal Justice Act, which came into force in March.

Scottish Widows' initiative has surprised company directors and other investment institutions alike. There is concern that the move is over-legalistic and could stifle usual communications between directors and big shareholders.

In a letter, which will be sent ahead of a meeting between company directors and its fund managers, Scottish Widows says the Criminal Justice Act makes it important that the scope of meetings is 'clearly understood' in advance.

'Our principal objective is to improve our understanding of a company's long-term strategy. While we are also interested in shorter-term problems and opportunities, and in the current business climate, we emphatically do not want to receive any non-public price-sensitive information,' the letter says. And it asks a representative of the company to sign an undertaking confirming that at the end of the meeting.

It adds that, if companies do not agree to sign the undertaking, 'we are prepared to tape record meetings'.

Ken Robertson, head of UK investments at Scottish Widows, said the decision to ask for the undertaking followed counsel's advice on the implications of the Act. About 10 of the letters have been sent already, and have met with a mixed response. 'Some have signed willingly, some have said we're not signing anything and some have said we're a bit uncomfortable about it and we'd rather not.'

He added that Scottish Widows had no intention of refusing to meet companies who would not sign the declaration, nor agree to be taped.

While there is considerable nervousness about the Act among investors, Scottish Widows is believed to be the first to have introduced such formal procedures.

Some other investors expressed surprise. 'We believe it is not necessary to have a signed statement, it is taking it too far,' a senior fund manager at one institution said. 'It is perfectly reasonable for shareholders to talk to directors.'

Another expressed his concern that an excessively legalistic approach could damage the relationship between companies and all their institutional shareholders.

Richard Regan, head of investment affairs at the Association of British Insurers, said: 'Clearly the new insider dealing legislation does create greater concerns. But we should strongly urge that this should not deter shareholders from developing further the dialogue with companies that has been developed in recent years.'

Mike Pearson, an investment director at Scottish Widows who helped to draw up the letter, pointed to the lack of a definition of what constitutes 'significant' information and to uncertainty over when information is 'made public'.

'People's careers could be ruined by this. They could go to jail.'

Concern was heightened by the recent trial of Thorold Mackie, a Scottish analyst. Although that was not conducted under the Criminal Justice Act, one of the issues in the case was a dispute over what was said at a meeting betwen Mr Mackie and Shanks & McEwan. Mr Mackie was cleared on appeal.

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