Undershooting low expectations

Well, at least it was 3-4 pages rather than 2-3. Yes the ISC paper is out (PDF), though at present it's not actually on the ISC's own website. It reads like the fund managers have nobbled it. From my take on it there is no real acknowledgment that they could have done a better job. And, more importantly, there is no sense that being active in governance should be part of the job of being an asset manager. Instead the emphasis early on is on fund managers' clients (so pension funds primarily) setting better mandates.

Whilst I certainly think pension funds ought to set out their expectations more explicitly, surely the ISC ought to be making the argument that there is a fiduciary duty to take these issues seriously. The lack of such an emphasis, combined with recent comments from industry figures that managers should always have the right to just sell out, and not be required to be active, suggests that the fund management lobby doesn't want to play ball.

It gets worse. From what I've heard it sounds like the paper that has appeared is actually a watered down version of an earlier draft. From what I heard one proposal that had been floated originally was to make it easier to file shareholder resolutions, and apparently there was also a call for annual elections of all directors. The first point doesn't appear in the paper that came out yesterday, and on director elections the recommendation is that only committee chairs face annual re-election. In both cases the original proposal was hardly radical - like the vote on remuneration reports it would only be a problem for companies if investors actually used their rights effectively, and we are still some way from there. So to bottle them looks particularly weak (I wonder if the investment companies lobby didn't like the director elections, since it would affect their membership).

So it's a missed opportunity, and I know that some investors aren't that impressed with the ISC's paper. More interesting I suppose will be what Lord Myners thinks of it. He has put pressure on the ISC to up its game - this paper surely falls short. Perhaps it's a political gamble - the industry (or part of it) is working on the assumption that Labour is doomed and therefore has no need to respond seriously to pressure from HMT. Certainly there are no signals that the Tories are interested in this stuff, and they have historically taken the industry line at face value, along with its money (from Fidelity & Caledonia Investments). So they are probably right in thinking a Conservative administration would leave them alone. The prospects for reform don't look promising.