THE arrival of former Treasury minister Lord Myners to lead a review of Co-operative Group’s inner workings has shone the spotlight back on corporate governance.
The issue seemed to have been put on a back burner since last year’s publication of the Kay Report, which concluded that an over-reliance on bonuses and a lack of trust had created a short-termist approach in the City.
Myners will have his work cut out in restoring trust at Co-op Bank, which has been lurching from one crisis to another since a deal to buy more than 600 branches from Lloyds Banking Group fell apart in April.
Soon after that, a £1.5 billion black hole was discovered in its finances, which will see Co-operative Group left owning just 30 per cent of the bank.
Then the bank found itself engulfed in an unholy scandal involving former chairman Paul Flowers, the Methodist minister facing allegations of drug supply offences.
Questions remain as to how Flowers, a man with little knowledge or experience of banking, was able to rise to the helm of a once-proud mutual lender, and Myners will be searching for the answers in his review, for which he is being paid £1 a year.
The former Marks & Spencer chairman admitted to being “naive” when he agreed to former RBS boss Fred Goodwin’s pensions package so extra vigilance will be required to ensure the appropriate governance practices are in place to protect the best interests of the Co-op’s members.
With the Co-op Bank preparing for a partial stock market listing, it will come under increased scrutiny by a new legion of shareholders, and fund manager Standard Life Investments (SLI) has been busy drawing up guidelines to help investors keep a watchful eye on governance.
As one of the UK’s largest institutional investors, it was already a strong supporter of plans to give shareholders greater powers to block executive pay plans, and now it wants bosses to hold on to their shares in former employers for at least a year after they leave. This, the company believes, will encourage more of a long-term approach among those at the top of listed companies as it would expose them to the effects of their decisions even after leaving.
SLI’s aims echo those of Professor John Kay – a former member of the Scottish Government’s Council of Economic Advisers – who also argued that bonuses should be paid in shares, held at least until the executive has retired.
As last year’s “shareholder spring” showed, investors will take action if they feel bosses are stepping out of line, and new rules ushered in by Business Secretary Vince Cable have given shareholders a binding vote on executive remuneration.
In its guidelines for its own fund managers, SLI says it will hold companies to account if they do not implement “values and standards of business practice”. If we are ever to move away from a culture of short-termism in business, all other shareholders should do likewise and make their voices heard.