It's a regular theme of mine that the idea that shareholders are 'owners' of companies in anything more than a very limited sense is looking wobbly. This week as part of a project at work I came across more evidence of this. It turns out some of the biggest fund managers don't even bother to vote in all markets. No, I'm not talking about simply not voting your two Moldovan equity holdings because you have to send in a hand-written parchment six months ahead of the AGM. I'm talking about not voting in markets like Japan, Europe and so on. I was genuinely shocked.
Now I know there is an argument to be made that voting doesn't often achieve that much, and the costs sometimes outweigh the benefits, for example if there is share-blocking. But if you are really serious about trying to improve governance, and actually want the 'shareholder as owner' model to work, surely you have to better than this? The other thing of note was just how few people are actually involved in looking at corporate governance in some of the big houses. The research I was looking at suggested that just a handful (one hand!) are looking after several thousand companies, and assets of several hundred billion pounds. I don't think that's going to work!
The problem is exacerbated because the small number of fund managers that do actually resource voting and activism to a significant degree don't win many mandates from pension funds. Trustees instead almost always delegate responsibility for this stuff to whichever manager they appoint to run a particular chunk of assets, regardless of whether that manager has any strength in this field. Notionally pension funds call the shots, and as the ultimate 'owners' they could tell fund managers to step things up. But pretty much every fund manager I have spoken to over the past 5 or 6 years says they get very little interest from clients in how they vote etc. So, most managers don't do it well plus their clients don't provide any pressure or incentive to do so. Not looking good is it?
Add one final twist to the story. I don't think the shift from DB to DC provision has really been thought through in terms of its impact on shareholder-driven corporate governance. As explained, at the moment I think oversight by shareholders is weak, plus oversight OF shareholders - as in fund managers - is also weak (and this is without touching upon fund manager conflicts of interest etc). But in a DC world whatever ownership power there is resulting from owning shares (whether or not it is actually exercised in practice) will shift over to the fund managers, because by and large they don't even have trustees to deal with. So there will be even less pressure to engage over corporate governance.
The one plus point is the the Personal Accounts scheme, which will become the biggest in the UK, will have trustees. So it will have an opportunity to make a real impact. However it won't be up and running until 2012 - after the next election. Based on my experience of public policy in this field, where the Tories repeatedly sided with the fund management industry in an effort to stall reform (public voting disclosure for example) I think a change of government may therefore affect the Personal Accounts trustee board's ability to be a leader in this area.