It is an accepted dogma at most business schools - and certainly with
investment bankers - that corporate activists are a good thing.
But there is a basic problem in seeing the practice of
shareholder activism as a solution to the problem of corporate
governance: Any communication among investors creates the danger of
conflict of interests. Dialogue with management or other investors
gives an investor insights into the business outlook of the business
and an advantage vis-à-vis ordinary shareholders that are not privy
to this information.
Only full disclosure
of all communications between management of investors can guarantee
a level-playing field for all investors. In addition, a 'quiet
period' after any direct communication might also be useful. A few
days after any direct contact (and dissemination of relevant minutes
of the information exchanged) should be enough given that most
investors have easy access to bulletin boards, corporate websites
It would also be helpful if all significant proposals are discussed
in an open forum that is open to all shareholders and where all
proposals are put forward. It is high time that the owners of a
business do not only read in the newspaper when major decisions
affecting their investment are taken. The good old Annual General
Meeting (possibly supplanted by some sort of electronic
alternative) would be the most appropriate forum.
ON SHAREHOLDER ACTIVISM
About Pro Governance
Our Mission is to
campaign for the protection of investors and savers by promoting
good corporate governance.
We also believe that the wider spread of share ownership is in
itself a public good and may sometimes even be preferable to higher
Shareholders in publicly listed companies are widely dispersed and cannot
micro-manage the affairs of the companies they are invested in. The
international nature of today's shareholder registers make this also
impossible for large institutional investors.
On the other hand, abuses that have developed over the past few years make
it imperative that company managements are supervised in a more efficient
Tax incentives and institutional constraints have favoured the growth of
large institutional investors at the expense of small individual
shareholders. This makes it more important than ever that these investors
behave like fiduciaries and have the interests of their clients at heart.
This means that the business of
money management cannot be treated like any other profit-maximising business.
Like the medical, legal or academic professions the interest of the clients
has to have priority when critical decisions have to be made with regard to
companies the money managers are invested in.
We at Pro-Gov think that the establishment of an effective international forum
combining representatives from the national organisations of individual
shareholders and investors will be an effective step in the direction of
improving corporate governance.
At the moment the corporate
Governance discussion is limited to academics, journalists in the quality
business press, institutional shareholders and companies and their business
associations as well as politicians. The one party missing on the table are
the real investors who - with some exceptions - voiceless in the debate.
isn't what's illegal; it's what's legal"