This week might just have seen a marked shift in how British investors think about their role as owners of companies.
First up we had three of our largest unions teaming up behind a set of governance guidelines which they will wave noisily in the air at AGMs, but more significantly, Tuesday morning saw the first steps towards building the kind of collaborative architecture for investors envisioned by the Kay Review.
As first steps go, it’s fairly tentative (as was the first, first step). In a sparse announcement, the Association of British Insurers, the National Association of Pension Funds and Investment Management Association said they will set up a working group to report back on how collective engagement “might be enhanced to make a positive difference.” It is a response to Economist John Kay’s government-backed report from last July, which argued funds could improve returns to savers by presenting a united front to company boards.
We’ve looked before at how difficult this will be given the diversity of outlook and motivation among investors. Significantly, Tuesday’s statement makes explicit reference to drawing in “overseas investors” who at the last count were heading towards ownership of half the UK stock market, though quite how that might work is hard to see. IMA chief executive Daniel Godfrey told Reuters he has already spent some time sounding out some of those foreign share owners, and encountered a “range of views and a range of enthusiasms.” The next step, he says, is to work out whether there’s a way to navigate past the obstacles.
The members of the working group tasked with this will be named by the end of next month and will be expected to deliver an answer in the autumn. The hope will be that they can avoid some of the issues which have hampered the ABI, NAPF and IMA’s last effort to join forces.
The IIC (Institutional Investor Committee) was — or in theory ‘is’ (it is still there in an odd kind of zombie state) — an initiative to corral institutional investors into a meaningful whole in the wake of the financial crisis. Its example will act as a warning to the working group trying to come up with an alternative.
The IIC’s first action seemed oddly to sidestep the flaws most visible during the crisis, setting up a committee to investigate rights issue fees which arrived at the not unexpected conclusion that they were… drumroll…. too high! Since then it has pretty much disappeared from the radar, knocking out ho-hum press releases at the rate of three a year and singularly failing to latch on to that new vigour among investors which inspired starry headlines during last year’s so-called ‘shareholder spring’.
The latest word is that IIC will continue to exist, even though its stated remit chimes harmoniously with this latest project, and with the conclusions of the Kay Review. It is probably fair to note that it has ‘focused’ on broad policy issues rather than on the nuts and bolts of browbeating chief executives or gathering forces to vote down a pay deal, but it also cannot be accused of leading the agenda on issues where is has got involved.
In short, it seems to lack ambition as much it lacks firepower, and this new initiative will have to make sure it falls at neither hurdle. Godfrey tells us he is “determined we should do something where we are able to follow through”; his blog post today hints at a nimble structure which is nevertheless able to do the “heavy lifting” in individual cases. Perhaps the crucial moment will come if it does succeed in gathering some support from among the giant sovereign funds and U.S. investment houses as well as investors whose outlook is more short-term. Progress convincing these players to join the game will mean there is half a chance that we might see a new Big Beast to shake-up British boardrooms.