Friday, 18 June 2010

Interesting comments from the FRC chief exec

Get a load of this:
“Without a critical mass of engaged investors, boards are not held to account, and the call for regulators to take more direct action is hard to resist - with all the implications that has for a loss of flexibility in the way companies are run.

“If shareholders do not lift their eyes and see that as a result of such views stewardship is weakening and needs to be strengthened, then Governments will conclude that governance must become based on law – and that is not good news for shareholders investing in companies that need flexibility to win in global markets – and the public will conclude that shareholders do not deserve their rights.

“So to those who have shareholder rights, I say use them or lose them. And to those who can get engaged, I say now is the time to start”.

I obviously agree, as I've been banging this particular drum for some time:
in public policy generally in this area, a return to pre-crisis behaviour by institutional shareholders could do a lot of damage. As I've banged on regularly in the past, if the owners - for whatever reason - repeatedly show no inclination to act like economic theory would suggest they ought, then people will question a shareholder-focused governance regime. If companies and their investors wish to avoid a situation where there is a greater statutory element to governance they need to recognise this.


Nick Drew said...

so then Tom - what about Sants and his "contribute to the common good", eh ?

barking, I'd say

Tom Powdrill said...

Hi Nick

Odd speech all round. As you know I like the behavioural side of governance, so thought I would find it interesting. But he seemes to spend a lot of time not saying anything that significant. Turner's speeches have been a lot more enlightening in my opinion.

Yeah the proposed change to directors' duties is also strange. A duty to act in the the common good could be read so widely that directors could be (rightly or wrongly!) held liable for all kinds of stuff. I assume it's therefore intended to be more about 'sending a message'.

Notably Walker looked at this issue in his review of BOFI governance and came down firmly against (section 2.3 onwards in the consultation doc that came out last July).