In a speech to the CFA Society, Robert Jenkins said the “investment community” had played a part in the credit crunch “more than we care to admit. This is by not only by buying flawed derivatives from banks but also by failing to hold their boards to account.
“I would encourage active managers who hold the shares to engage. And I would encourage all shareholders who engage to vote down directors of companies they judge to be poorly run. Hold them accountable. Who else will?” he asked.
Although it is asset managers’ responsibility to maximise returns for clients, company boards should fear consequences if they do not listen to those who represent the companies’ owners, said Jenkins. “Surely [this] must be a good thing for our industry and industry more generally.”
Noting that much shareholder activism takes place behind closed doors, he added it still appeared ineffective.
“A number of prominent money managers testified to the House of Commons Treasury Select Committee that they had demanded the resignation of certain bank directors well over a year ago. These revelations attracted two types of observations: many commentators applauded the previously undisclosed attempts made by institutional managers. Others by contrast bemoaned the impotence of an industry that was ignored.”
While active managers may “vote with their feet” by simply selling a company whose board they are unhappy with, passive investors are sometimes obliged to hold shares in a company and can use this as an opportunity for engagement with boards, he added.