A few years back when I was still at the TUC, I went to a conference on globalisation organised by the DTI for policywonkers. There was one session that had relevance to corporate governance and I remember saying that the shifting asset allocation of institutional investors, away from home markets, would likely have an influence on UK corporate governance. US investors, likely to be responsible for the main block of new ownership of UK shares, might take a different view to that of domestic investors. Lead balloon time. I felt like I was being viewed as numbskull protectionist (which I'm not, honest) but I was only suggesting what might occur.
Well, a few years later I think we are starting to see it happen, albeit in rather trivial terms so far. As I've blogged previously, the position of some US investors (and, I think, some non-UK European investors) on resolutions seeking to reduce the notice for calling meetings is already showing up in voting data. The average vote against this type of resolution this season is significantly above the average vote against a director or an auditor appointment. Now you pays your money and all that, but this doesn't make any sense to me. More importantly, I think it is a further distortion of the signaling function of voting, a point I think is still missing from the stewardship debate. (My point in a sentence - if you have concerns but still vote in favour, your signal to the market is misleading).
So far this hasn't mattered too much at a company-specific level. As far as I can see only two companies - Hammerson and Blacks Leisure - have actually lost the vote on such a resolution, and in the latter case this seems to be the result of Mike Ashley dicking about. But it's not the only issue where this seems to be happening. I've also seen some high votes against political donation resolutions where the company has said it doesn't make party political donations (which, as we know, is the case for the vast majority of UK companies). Trawling through public voting data, we can see that again it isn't UK institutions causing this.
More significantly, there are now some pretty stonking votes against resolutions relating to share issue authorities, including at least two or three defeats (Investec most recently). This is a slightly different case, as certainly some UK investors will take the same stance, but the votes against these types of resolutions do seem to have gone up. But again, having trawled through a fair bit of voting data, I don't believe it can be UK institutions in the main driving it. I'm interested to hear what others think.
Of course you may argue that none of this matters. If you believe in a liberal market for corporate control you can't really moan about the 'wrong' people with the 'wrong' views ending up owning UK public companies. But I do think is something we need to keep an eye on. For example, what if US mutual funds, not known for their hard line on executive compensation, become a bigger influence. What message will they send UK PLC boards about pay restraint? If the UK is going to stick with shareholder oversight as a means to address executive pay inflation this may be a problem we need to think about in the future.
It's potentially another significant issue for the UK's corporate governance model to address.
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