Fund management on autopilot doesn’t serve shareholders
We’ve been examining the voting records of institutional investors for seven years now at the TUC, through our Fund Manager Voting Survey (2009 full survey here), and we’re noticing a worrying trend- we’re now down to 40% of fund managers responding to our survey, compared to 68% only five years ago. The data that many other fund managers are choosing to make public outside our survey is often only partial and of a pretty low quality.
Coupled with this, there seems to be a pattern of complacency amongst many funds. The vast majority of institutional investors didn’t challenge the remuneration reports of leading banks in the run up to the crash. Only one respondent (Co-operative Insurance Society) opposed RBS’ acquisition of ABN Amro (which is now widely regarded as one of the worst deals in UK corporate history). Such a strong pattern of siding with the board on controversial decisions looks like fund management on autopilot.
The theory is that in modern capitalism company boards are accountable to their owners, the shareholders. But this is a long way from what is actually happening. Instead share owners, mostly ordinary people saving through their pension funds, simply have no say.
The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so. What is worse is that many will not even tell the unions that represent thousands of pension fund savers whether or how those ownership responsibilities were exercised.
The tragedy is that this system has been tested, with the result being the near destruction of the global financial system. In practice, big banks were accountable to no-one, their boards free to chase big bonuses without any regard to safeguarding the long term interests of their share-holders.
And yet the City seems set to go back to business as usual, talking up green shoots and opposing change while unemployment continues to rise as those with no responsibility for the crash continue to lose their jobs. It looks to us as though the voluntary approach to disclosure has comprehensively failed, and that Government needs to use its reserve power in the 2006 Companies Act to enforce mandatory disclosure.
Tom P has also blogged his thoughts on this.