Where were the shareholders in the financial crisis?
In a useful and timely contribution to the financial crisis debate, PIRC – the Pensions Investment Research Consultants – has published a manifesto outlining its recommendations for reform of corporate governance and capital markets.
PIRC recognises that alongside a catastrophic failure of financial regulation, the financial crisis represents a failure of corporate governance, and its analysis makes a welcome change from the focus on the (admittedly very important) issues of credit, liquidity and financing that have dominated the pages of the Financial Times and other broadsheets in their analysis of the crisis.
The PIRC manifesto sets out suggestions for both policy changes and areas for further research, including establishing a new governance and ownership arm within the FSA, a new fiduciary law enshrining investors’ stewardship role, mandatory disclosure of shareholder voting records by investors (a long-standing TUC policy aim), enhanced disclosure of pay and benefits, including information on employees’ pay within companies (ditto) and a levy on hedge funds that use shorting to fund research into its effects. PIRC’s suggestion that the UK should seriously consider the idea of employee representation within the governance structures of listed companies will be of particular interest to employees and trade unions.
There is much to debate here (for example, is the FSA rather than the Financial Reporting Council the best place to host a beefed up corporate governance regulatory oversight function?) but these are debates that need to take place, and need to take place now before the will to learn the lessons of the crisis is gone. It is essential that policy makers recognise the central role of corporate governance failures in the current crisis and take steps to address the existing weaknesses in our system; corporate governance is too important to be left to the wonks.