January 30, 2010 2:00 am
Institutional shareholders have set a cracking pace this year for public engagement with the companies they own.
Several have spoken out on corporate battles this month, and at a volume rarely heard before.
Investors say this is just the beginning. They are being urged on by regulators and politicians, such as Lord Myners, City minister, who are pressing shareholders to act like owners and act together to improve corporate governance.
However, this more pro-active approach is throwing up questions over how shareholders work together to force their views on boards, especially if their actions threaten a change of control. Regulators may have to address these issues over coming months.
This week the board of Omega, the Bermuda-based insurer , yielded to demands of more than three-quarters of its shar eholders, led by Invesco Perpetual, which unusually called for a special meeting to vote on replacing the board. The company yesterday said it was holding a vote "to effect this change of control" of the board.
Also this week, Piedmont, the investment vehicle of Joe Lewis , the Bahamas-based currency tycoon, forced a board shake-out at Mitchells & Butlers, the pub group.
Unusually, several institutions, such as Standard Life Investments , Aviva Global Investors, Royal London Mutual and Scottish Widows Investment Partnership, spoke out publicly against Piedmont, with 23 per cent of the group being able to nominate so many board members.
But the Association of British Insurers, representing institutions holding a fifth of M&B, said it would not let the matter rest. Peter Montagnon, investment affairs director, said: "Our members . . . remain uncomfortable with the process that has enabled a minority shareholder to determine the composition of the board without paying a premium for control. There are important issues of principle here that we . . . may take up with the relevant authorities."
John Lovering, M&B's new chairman, said: "Most observers think that there should be more shareholder activism, and I agree with that. But there must be easier and less fractious ways of achieving these goals."
The pressure on shareholders to be proactive has been mounting for more than a year. In December, Sir David Walker published his review of governance of financial services and included proposals for an investor code that would encourage investors to work together and boost interaction with boards.
This week, the Financial Services Authority outlined its plans to augment Sir David's proposals. Meanwhile, the Financial Reporting Council is consulting on a stewardship code that would apply to investors in all companies.
But it is moot how powerful the UK long-only institutions targeted by the FRC's stewardship code and the Walker report are. Overseas investment groups, hedge funds and sovereign wealth funds own more and more of UK companies.
Moreover, it is a tough job bringing together a disparate group of institutions acting as agents for thousands of different investors to express a single, coherent view. That sets the scene not just for more engagement battles in the next few months, but also acrimonious ones.
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