Responsible InvestingIn January 2010, UKSA published a booklet entitled "Responsible investing: for the individual and for society" The complete document is available as a single pdf and printed copies are available on application to our office. Where we give quotations below, they are from the booklet unless otherwise indicated.

Individual savers and investors have been treated disgracefully in recent years, disenfranchised and ignored, viewed only as fodder for the extraction of value by the financial services industry. It is notable that in virtually all the official inquiries into the failings which the credit crunch exposed, the term ‘investor’ was taken as synonymous with institutional investors only. Individual investors and savers are still being ignored."

PART ONE of the booklet describes how we see the responsible private investor.

"From the standpoint of corporate governance, private investors have no conflicts of interest and are without commercial pressures from employers, so they enjoy the luxury of being able to take a more objective position than those who are required to demonstrate short-term results."

"This booklet is not asking for hand-outs. It is not asking for special privileges. It is asking for fairer treatment, but it is also asking for the opportunity to make a contribution to better corporate governance of UK businesses."

PART TWO is about removing obstacles and constraints. How is the private investor to be given the power to exercise their responsible attitude to better effect?

Just what are the problems? You can get pretty depressed reading this part. They are legion. But there is one silver lining to the recent (ongoing?) financial crisis - the fact that we are now much more prepared to question our political and financial leaders. Ownerless Corporations is a term used to describe the fact that many, if not most, companies are not controlled by, or on behalf of, the underlying investors, because the money-managers to whom most funds are entrusted have no real incentive to think or act like owners on behalf of the underlying investors. Tackling this problem would unleash a huge force for good in our society. And we believe that individual private investors have a real role to play. Our most radical suggestion is the establishment of shareholder committees. We set out here an extract from Part Two of our booklet.

Shareholder Committees

William Cash MP presented a Private Member’s ‘Protection of Shareholders Bill’ to Parliament on 17 March 2009. The Bill promotes the idea of shareholder committees to represent the interests of individual shareholders alone. UKSA strongly supported this initiative and wants to see boards of directors introducing such committees on a voluntary basis, without waiting for legislation. Among the key features are: members of the committee to be elected by individual shareholders only; committee members to be unpaid, apart from out of pocket expenses; the committee to have no power to impose actions on the company, but; the committee to have channels of communication with the company and a mechanism for communicating with the world outside; the committee to meet at least quarterly and one director to be specifically designated to attend its meetings. In short, the Committee is intended to be a representative body with influence -the influence that comes with access to publicity, whether restricted (such as emails to private shareholders), or general (such as a press release). These rights for those who are owners of the business are no more than are already given to its employees through the Information and Consultation of Employees Regulations 2004 (SI 3426). Being a representative body, it circumvents the problem of coordinating the actions of individual shareholders acting alone. The cost of communications is made trivial by the use of the internet. A voice is given to a significant group of investors who will take a long term view and focus on the sustainable corporate performance that is the prize and objective of good governance. The concept of private shareholders’ committees was included in the final report of the Walker Review (paragraph 5.17) following UKSA representations to Sir David Walker, quoted below.

"In respect of individual shareholders, Annex 6 of the July consultation paper observed that, largely for logistical reasons, individual shareholders, who together hold more than 10 per cent of UK equities, can rarely be brought into engagement initiatives. In a submission to the Review, the UK Shareholders Association (UKSA) said that many private shareholders could make a positive contribution to governance and propose empowering this behaviour through shareholder committees elected by individual shareholders. Under this proposal, such committees would seek to have regular meetings with companies in which they were specifically interested, to be attended by at least one director of the company at which he or she would be prepared to discuss and be questioned on key aspects of the company’s policy. This proposal could clearly have attraction in bringing together a group of well-informed and committed individual shareholders to provide challenge and a fresh perspective to directors and management. But the conclusion of this Review is that balancing of the potential costs and benefits of such engagement, attractive as it may be in principle, should be a matter for individual boards to determine as part of their investor relations strategy, and accordingly no recommendation is made in this respect.”

The absence of a recommendation was entirely reasonable in view of the need for exposure of a new idea (or an old idea resurrected) to debate. However, the suggestion in the Report that such committees should be voluntary on companies is misguided: good governance cannot be voluntary and engagement is not the same thing as advice. Even so, we are very encouraged that the idea has been given some official endorsement and is now firmly in the public domain. (end of extract)

PART THREE is the manifesto. We have prepared this for the web site as a two-page pdf, for ease of printing. The manifesto is a simple list of required changes, grouped into three areas for change: relations with companies, changes we want from regulators, and some fundamental changes which only Parliament can bring about.

THE LAST WORDS BEFORE WE SHOW SOME PRESS COMMENTS

"Although the concept of private shareholders committees is not a new one and has even been adopted abroad (most notably, perhaps, in France), it has become for UKSA a cardinal objective in a campaign for the restoration and reinforcement of private-shareholder rights in general. As this booklet sets out to demonstrate, this is not a desire for special privileges to be given to a select group of the rich elite, but for the strengthening of private saving on the one hand, throughout society, while at the same time strengthening the hands of those who would use their investments to improve the governance and hence the future prosperity of UK businesses in general and the nation at large.

Nothing in this booklet is intended to be the last word on the subject, but as a foundation stone for what needs to be developed, UKSA’s aims have been incorporated into a manifesto and this forms Part Three of this booklet. Written in the style of the highly respected Combined Code of Corporate Governance, UKSA’s manifesto seeks to change attitudes towards the private investor at all levels, within companies, within the regulators and within Parliament."