Myners wants legal governance duty for managers
UK - Lord Myners has suggested the Institutional Shareholder Committee (ISC), established in response to his review of institutional investment in 2001, "has not really achieved anything".
Speaking at the National Association of Pension Funds (NAPF) annual investment conference in Edinburgh last week, Myners told delegates there had been a failure by institutional investors to "adequately scrutinise and monitor the decisions of boards and executive management and hold them accountable for their performance".
In his keynote speech, he told the conference "our best efforts have not been enough - more must be done", and warned the recent major corporate failures "are a result, frankly, of failures to do what is required by the [governance] principles in a professional way that acknowledges the responsibility of investors to their clients and their beneficiaries".
He argued although pension fund trustees "can and do delegate investment decisions and rely on investment advice, trustees are nonetheless the ultimate decision-makers for occupational pension funds" and warned they "must show that they are taking governance more seriously".
In response to the suggestion that it is not for pension trustees to challenge the boards but the non-executive directors, and they would rather just sell the shares, Myners agreed "it is up to the board but they are appointed by the shareholders so they should not dismiss their responsibility".
Myners, now financial services secretary to the Treasury, said he had made a very strong case for improved governance and warned trustees it "shouldn't be assumed to be part of the package" with fund managers.
Referring back to his original recommendations in 2001, Myners said governance has to be explicit in the mandate with "clear articulation of expectations and consequences", and questioned whether there should be a legal obligation on professional investors, such as fund managers, to "enhance the quality of investment and governance to promote value creation", based on existing US legislation such as the Employee Retirement Income Security Act (ERISA).
He told delegates his recommendation for a legal duty regarding governance was "probably the only one not followed up", as instead he claimed it was "watered down to the ISC". Although Myners said he accepted the ISC as a "compromise", he argued "it hasn't really achieved anything".
In his speech, he admitted "we have detailed principles governing shareholder engagement as set out by the ISC", but in the question and answer session he confirmed "I will be asking [Sir David] Walker to look at it again in his review as we need to hardwire governance into contracts".
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