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CORPORATE MONEY

Call for greater shareholder involvement
An article on shareholder democracy in public companies by Keith Hatchick

Both the Cadbury and Greenbury Committees (reporting in 1992 and 1995 respectively) were largely concerned with the role of directors and non-executive directors. Hampel, whose report was finally published on 28 January 1998, also and most interestingly, addressed the question of corporate democracy. The report, like its predecessors, is intended as a guidance to listed companies, though in future it's hoped the recommendations will form part of the listing rules.

However the report's relevance should not be restricted to quoted companies: it should also, where possible, be looked at by any large or medium sized private company which may have set its sights on some form of listing (whether this be stock exchange full listing, the Alternative Investment Market or a "share club" like Ofex). Indeed any business which is interested in following good corporate management should seriously consider implementing the recommendations. It is to be welcomed that Hampel was prepared to consider a company's relationship with its shareholders since the best way to address the issues is through a code of guidance. The issues involved do not lend themselves to direct statutory intervention.

The report focused on three types of shareholder. Institutional shareholders holding approximately 60% of free floating shares, overseas holders (on the whole also institutions) who hold approximately 20%, and individuals who hold the remainder. It was the first, and to a lesser extent the third type of shareholder, with which the report was concerned. The role of investing institutions has changed.

Whereas traditionally they tended to take little interest, or make much use of their voting powers and even, on occasion, manipulated required results by the buying and selling of shares, circumstances have changed.

They now tend to own more shares and can only deal in smaller batches of shares for fear of depressing or increasing market prices. Hampel felt they were now taking a more proactive interest in the management and running of their interests. They did this by voting at general meetings and informal contacts with the relevant companies. Hampel, unfortunately did not take a stand on whether voting should be compulsory. Like electoral reform, the committee felt it should be strongly urged but fell short of making it compulsory.

This is unfortunate since one can only assess the true feeling of the members if each shareholder is compelled to vote. Hampel was also somewhat too general in stating that institutions should take a long term view. Since their holding can be such a large percentage of the whole the instruction was somewhat obvious.

"Hampel was too general in stating that institutions should take a long term view... the instruction was somewhat obvious."

Surely an opportunity was lost by Hampel in not making their role a little more open. A basic tenet of company law is that the board is responsible for the day to day decision making, but it is ultimately answerable to its shareholders.

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