Thursday, 27 December 2012

A mini corp gov policy for Labour

I've been blogging a bit lately about the direction in which Labour thinking on corporate governance seems to be moving. Maurice Glasman seems to push the argument the furthest and explicitly advocates a co-determination model in the UK. I'm not sure how much support that has and it's worth noting that in the past the UK labour movement has been ambivalent about the idea of employee involvement in company governance.

Nonetheless there is a bit of a sense amongst people on the Left who think about such things that the 1990s vintage of corporate governance - which Labour did much to bring to life - has not delivered what was expected. In a sense the whole 'stewardship' debate in the UK comes from the realisation that even the biggest institutional shareholders did not exercise the kind of oversight that much theorising about corporate governance expects.

The response of the mainstream corporate governance community has been to push the existing model further - hence we now have a Code for the interaction between shareholders and companies. But some people on the Left are starting to look at other models, particularly with a greater role for employees.

In this context the existing Labour policy commitment - employee representation on rem comms - makes a bit of sense. It's a nod to the idea that other stakeholders should have a say in governance, but can (just about) be made to fit within the existing system too. There are some important issues that would still need to be dealt with - who appoints employee reps, should they face a shareholder vote too, do they count in an 'independence' assessment of rem comms, who trains them etc etc. This is an issue I'll come back to in a future post.

However, if the we're still basically straddling the two camps here's a micro policy idea - a future Labour govt make it easier for shareholders to file non-binding resolutions. Currently if you want to file you need to have either 5% or have 100 shareholders supporting the resolution with an average holding of £100. Given the supposedly* more fragmented nature of the share-ownership of UK PLCs these days, 5% looks like an awfully high bar to set. To put it in context, Legal & General, which manages billions on an index-tracking basis, usually holds about 4.5%. Only BlackRock could be confident of being able to file on its own (if it ever wanted to) in most companies. And what about companies with controlling shareholders? No single investor except News Corp held over 5% of BSkyB in the run up to last year's AGM.  

So why not drop the threshold to, say, 1% and allow investors to meet this threshold by co-filing (ie two investors with 0.5%, three with 0.35% etc)? Realistically, this would still mean that only institutional investors could file on their own, it would at least widen the pool of those who could file relatively easily. Bear in mind, too, that this would mean the process is considerably tougher than the US. But it would at least provide a new option to shareholder who wish to be proactive.

Of course some of the big investors - and representative bodies - won't like the idea. But then most of them didn't support the idea of a binding vote on remuneration policy (if you go back even further, some of them even didn't support the introduction of the advisory vote!) so opposition of that type shouldn't be seen as particularly important. In addition I know there was some discussion of an idea like this in corp gov policy land in 2009, but it was squashed, so it wouldn't be completely out of the blue.

It's a minor tweak within the existing system but, if we look at the US as an example, it could enable a wider group of investors to be proactive in putting items on the agenda of AGMs.

* I'm not sure this is actually true. I think the ownership base has changed, so we see more overseas names on the share register, and there's a different mix at each company. But if you look in the FTSE 100 at the average holding of the largest investor, or the number of notifiable holders, you can make a case that fragmentation is a bit of a myth.

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