EUROPE - A proposal to issue binding guidelines for institutional investors on corporate governance was met with criticism at last week's CEIOPS conference.
Patrick Brady, chair of the Joint Committee on Financial Conglomerates (JCFC), suggested institutional investors should fulfil their oversight of the companies they have large investments in but if necessary should be required to do so under pre-set guidelines.
"We could introduce guidelines on how they oversee the companies in which they are heavily invested, and we would expect them to fulfil these,"argued Brady, who is also head of insurance supervision at the Irish Financial Services Regulatory Authority (IFSRA).
However, there was opposition to this proposal from Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR), who is also chairman of the Supervisory Board at the Belgian Banking, Finance and Insurance Commission.
"Institutional investors could have a more active role but it is extremely difficult to define that role and what do the investors can get in return when everybody can freeride on their efforts?" he claimed.
According to Wymeersch, there are reward schemes such as privileged dividends or double voting rights for active governance in some countries which would have to be considered as part of any obligatory engagement requirement.
"But if we look at the wider corporate governance debate it is completely overblown," he added.
For example, the often demanded separation of chairman and CEO is hardly an issue in the US where this joint role had proven successful so far, claimed Wymeersch.
Furthermore, independent directors introduced as a corporate governance measure "were not very successful in the crisis", he suggested.
Despite this, Brady is convinced that more engagement by institutional investors could have helped prevent parts of the crisis as he added there had been "little interference by institutional investors at companies' general meetings" so far.
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