Top fund firms plan to take on company boards

LONDON Wed Apr 14, 2010 2:49pm BST

Treasury Minister Paul Myners speaks during a news conference at Thomson Reuters' office in east London December 16, 2009. REUTERS/Paul Hackett

Treasury Minister Paul Myners speaks during a news conference at Thomson Reuters' office in east London December 16, 2009.

Credit: Reuters/Paul Hackett

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LONDON (Reuters) - Britain's largest institutional investors are preparing to bring their combined might to bear on recalcitrant company boards with a new body which will also try to influence policy for the sector, industry sources said.

Fund firms with a total of more than 3 trillion pounds in assets under management are hammering out final details of the project, with full details likely in the next three weeks.

"The basic idea behind this group is to ensure good ownership and to have something that is broadly representative of the entire UK investment community," said a source with knowledge of the project.

The UK investment industry is represented by industry bodies such as the Association of British Insurers (ABI), whose investment committee has thus far taken the lead on corporate governance issues, and the Investment Management Association (IMA) which represents the commercial interests of UK firms.

The idea is to have a group with the clout to stare down company directors who have riled shareholders over pay deals or strategy, while lobbying government on the industry's behalf.

The proposed body is also an attempt to deflect criticism from regulators and politicians who, in the wake of the financial crisis, criticised fund managers for failing to demand greater accountability from companies whose stock they own.

"There are lessons to be learned from the way we have dealt with the crisis. And as the crisis rolled on, the fund management industry has been more closely consulted than ever, be it from the regulator or the Treasury," said a second source who is a leading industry figure with knowledge of the project.

"(But) the authorities and the industry are not always joined up and one of things that would be good is to have mechanisms for joining us up."

STRAINED RELATIONSHIPS

Fund managers have become more vocal on contentious issues, particularly remuneration, with five resolutions on pay voted down in 2009 at companies including Royal Bank of Scotland (RBS.L) and Royal Dutch Shell (RDSa.L).

The new body could boost that process by enabling joint action on companies where relationships have become strained, and particularly when investors are likely to vote down a company resolution or if they believe their views are being ignored, the two sources said.

UK financial services minister Lord Myners has been urging investors to become more active in their engagement with company boards and he has publicly called on firms like Standard Life (SL.L), Prudential (PRU.L) and Fidelity to go public on their view of bank bonuses.

Last year he called for a body that would provide "an unfettered focus on investor interest and responsibilities".

In a consultation ahead of a report into best practice in the banking industry, City grandee David Walker recommended investors forge an informal but agreed approach to governance issues that may arise.

In his final report however, Walker withdrew the proposal after fund managers said it would hinder engagement with directors, leaving the way clear for the industry to create its own venue for joint action.

One stumbling block cited by Walker in his report was the rule by the Financial Services Authority (FSA) requiring persons "acting in concert" to notify authorities of an intention to acquire an aggregate holding of over 10 percent.

Last year, the FSA clarified that "there was nothing under FSA rules that prevents investors discussing matters when it is for a legitimate purpose".

(Editing by Joel Dimmock and Sharon Lindores)

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