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Labour's "shareholder activism" not the silver bullet, say lawyers

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Labour proposals to give shareholders more say over the appointment of board members are unlikely to improve the quality of non-executive members or their ability to challenge company chiefs, according to law firm CMS Cameron McKenna.

Yesterday, Shadow business secretary Chuka Umunna (pictured) called for a shake up of the way executives and non-executives are selected. Currently board members themselves choose who joins company boards. Labour says having four or five of a firm’s largest shareholders in charge of appointing people instead would increase accountability at the top of firms.

CMS Cameron McKenna partner Maxine Cupitt says shareholders are just as likely to appoint the wrong people.

She says: “Some shareholders lack the experience to select non-executive directors with the skill sets their company needs. Shareholder selection might, therefore, prove to be yet another obstacle deterring the right people from being appointed.

“While a primary role of directors, including non-execs, is to promote the success of the company for the benefit of its shareholders, shareholder selection of non-execs may sit uncomfortably with their critical function - independence and challenge.”

In his speech at the Institute for Public Policy Research, Umunna called for more “shareholder activism” citing this proposal as one way of achieving it.

He said: “This would create far stronger lines of accountability to those who ultimately own the business and would promote the shareholder activism and engagement which is key.”

He also called for firms to disclose their use of “remuneration consultants” amid concerns that they are “ratcheting up pay” in a way he likened to “unscrupulous football players’ agents - inflating salaries sometimes way beyond talent or contribution”.

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