Wednesday, 21 March 2012

Problems of ownership

Just catching up on some of the stuff in the Ownership Commission report. Below is what they say about stuff in my territory. My initial reaction is "meh". A couple of old ideas that I don't think will work, plus seems out of whack with actual pension fund practice. Quite like the idea of enfranchising individual punters, and we suggested this in response to a PADA (rememeber that?) consultation I think. But generally "meh".

The solutions to these problems may be relatively simple –

• Fiduciary duty – trust law already describes a duty for pension fund trustees to look after the financial interests of the pension fund’s beneficiaries. However, this is almost universally interpreted in a short-term way, leading to actions such as stock-lending and supporting the situation of excessive transactions through ‘supplier control’ described above. The UK Government could issue guidance on the interpretation of fiduciary duty making clear that this should be considered from a longer-term perspective, leading to less value lost through excessive transactions and more gained through good stewardship.

• Longer term mandates – as described above, investment mandates currently promote short–termism to the detriment of good stewardship. This includes the commonplace quarterly assessment of investment managers’ performance. Pension funds and other long-term end assets owners should be encouraged to take more control over the terms for the management of their beneficiaries money. An example of such encouragement, is the International Corporate Governance Network’s Model Mandate Initiative.

• Education of trustees – given the current part-time and lay nature of trusteeship, there is a good case for greater professionalisation and education of trustees. In the context of stewardship, this could include a ‘trustee toolkit’, which would be of particular interest to member nominated trustees and could be promoted through their networks or, where relevant, the underlying trades unions.

• Enfranchisement of beneficiaries (citizen-owners) - Pension funds and other long term savings
vehicles should use web based technology to canvass the opinions of their beneficiaries directly and provide them with information on the stewardship of the assets in which they invest. Such views and information could be provided through a collective engagement platform (see below).

• Aggregation of pension fund ownership –pension funds are very well aligned as long-term investors, with many investments in common and without the conflicts that exist amongst their investment managers. They are therefore able to share stewardship resources and pool their common investments in order to implement good ownership on behalf of their beneficiaries. The Commission supports the establishment of a formal collective of international pension funds to jointly own and fund an engagement platform, possibly as dedicated not for profit mutuals. Such an aggregation of resources and ownership rights would provide a stable, consistent and knowledgeable share-owner voice to the benefit of listed companies and the wider economy.

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