Tuesday, 2 July 2013

Shareholder primacy and the PCBS report

I'm a bit surprised by the lack of a reaction to the PCBS report recommendation that shareholder primacy be removed from the Companies Act, at least in respect of banks (see previous blog here). Although I've argued that this really only reflects the underlying reality (given the role of regulators etc) it's still quite a big deal, and obviously once the principle is conceded for banks why should it not be questioned elsewhere?

So far the only organisations that really seem to have appreciated the significance of this bit of the PCBS report are the FRC and the TUC, with interestingly different takes on it. The FRC and TUC both see the significance, but are the former are worried by it, the latter more encouraged by it.

The FRC says:
An amendment to the Companies Act to remove shareholder primacy could have a profound bearing on investors willingness to commit capital and might set precedents for other sectors.
The TUC says:
This begs the question, however – why just the banks? While the consequences of bank failures have been particularly stark, there is no reason why shareholder primacy should work well for every part of the economy except for the banks. 
Worth keeping an eye on. 

Incidentally, perhaps this bit of the PCBS report shouldn't be a surprise. When the Commission was taking evidence there were a couple of times when John Thurso MP in particular challenged the idea that greater shareholder engagement with the banks was necessarily a good thing (see here and here). It looks like his scepticism had an impact on the final report.

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