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investors and boards agree uneasy truce

May 2004

Peace talks aimed at soothing the strained relationship between UK investors and companies over CSR and corporate governance issues have concluded with an agreement to hold regular meetings between the two sides.

The agreement was reached at a dinner convened by the Confederation of British Industry and the Investment Management Association, after CBI complaints that growing activism among fund managers on issues such as executive pay and climate change was worrying companies.

About 30 senior figures from both sides, including chief executives from FTSE 100 companies and heads of fund management groups, agreed to set up an informal working group to improve relations.

Rob Lake, head of socially responsible investment at Henderson Global Investors, whose managing director Roger Yates was at the dinner, said the agreement was ‘very important’ because tension between investors and companies had been coming to a head.

‘Companies have become rather agitated about investors’ approaches to corporate governance and CSR issues,’ he said. ‘Their feeling is that essentially they are overstepping their legitimate role. From the investors’ point of view we pursue corporate governance and CSR issues because we think that’s in our clients’ interests, so we don’t see our approach as being inappropriate at all. But it was good to have this dialogue, and the dinner has made sure that each side understands the other’s perspective.’

The CBI told EP that although it welcomes active shareholders, many of its members now feel there is too much ‘one-way traffic’. Institutional investors were happy to criticize companies publicly on CSR and corporate governance issues but less willing to support or praise ‘when a company is doing well’. It also complains of ‘megaphone diplomacy’ by investors who raise issues at annual meetings rather than behind closed doors.

The CBI director-general Digby Jones said: ‘The importance of direct dialogue, in a private setting, has been recognized, and further meetings will take place over the coming months. The dinner was a timely opportunity for an honest exchange of views.’

The IMA, which represents the UK’s £2trillion ($3.6trillion) investment management industry, told EP the idea of the dinner had been to set up ‘clear lines of communication between ourselves and business’ so that tensions could be eased. Richard Saunders, the IMA chief executive, claimed the meeting had ‘allowed the parties to engage in a meaningful dialogue’.

A private investor was more blunt. He told EP: ‘Some of these companies should be pulled up short and only the institutions have the clout to do that. Investors have not been getting delivery of expectation on either dividends or growth.’

Shareholder activism and engagement in the UK has grown significantly in the past two years, partly through government pressure, but also following two separate corporate governance reports from Derek Higgs and Paul Myners. They both urged institutional investors to be more active in challenging company performance.




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