Lord Myners' call for institutional investor changes branded 'dangerous and undemocratic'

Published on Saturday 1 August 2009 14:15

SHAREHOLDER groups have branded a government minister's call for changes to the voting rights of institutional investors as "dangerous" and an affront to shareholder democracy.

City Minister Lord Myners said Sir David Walker's review of governance in the financial services sector should consider giving greater voting rights to shareholders who stick with companies, and discourage them from selling stock when firms get into difficulties.

Shareholders' groups hit back at the suggestions, warning they may not solve the problem of shareholder disinterest.

Peter Montagnon, director of investment affairs at the Association of British Insurers, said: "In what he is saying there is a lot of danger, because if you tell institutions that they can't sell whatever happens, then they are sometimes going to have to hang on and cause their customers and clients – who are savers and pensioners – a loss because they can't sell."

In February, Walker was commissioned by the Prime Minister to carry out a review of banking industry governance. He produced an interim report last month, which recommended strengthening boards, in particular by boosting the role of non-executives in the risk and remuneration process.

Myners yesterday said he would like to see the review's final report, due in November, go further, possibly by introducing differential voting rights for different classes of investor.

He suggested investors who hold shares for less than six months could be denied the right to vote at annual general meetings. Some commentators think the step might encourage corporate investors to take their ownership of the company more responsibly and become more engaged in its governance.

Major companies are "too important" for big shareholders to trade in and out of "willy nilly", the minister said.

Myners – branded by some as a poacher-turned-gamekeeper for having criticised the actions of some of his former investment banking colleagues – also said Walker should force banks to disclose the names and pay packages of their top-earning staff, regardless of whether they are on the board.

Roger Lawson, communications director at the UK Shareholders' Association, said the voting proposal was "fraught with danger". He added: "I suspect that this is an 'off the cuff' remark that he has not thought through. These kind of restrictions were not uncommon in the rest of Europe in the past and they were seen as prejudicial to shareholder democracy.

"It also undermines the 'one vote for one share' and 'all shareholders are equal' principles – then almost any discriminatory policy can be justified."

A spokeswoman for the British Bankers' Association (BBA) said: "We sympathise with the sentiment but where it has been tried before there have been problems as it sometimes leads to a clique of old boys and chums who actually don't challenge the status quo and exclude new blood.

"We also sympathise with openness on salaries and we are working with the Financial Services Authority on remuneration.

The trouble with complete disclosure of names is the risk that top fliers will be discouraged from working in the UK, as banking is a global business."

Myners yesterday also called on Sir Fred Goodwin, the disgraced former chief executive of Royal Bank of Scotland, to undertake charity work to repair his public image.