For immediate release: Friday 3 May 2002

 

IMA COMES OUT AGAINST LEGISLATION

ON SHAREHOLDER ACTIVISM

- ALTERNATIVE VOLUNTARY APPROACH PROPOSED

 

The IMA today published its response to the Treasury/DWP consultation paper “Encouraging Shareholder Activism”.

This paper, part of the Government’s follow-up to the Myners Report, proposes a new statutory duty on shareholders to “use such rights and powers as arise by virtue of such investment in the best interests of the members and beneficiaries of such scheme”. 

IMA recognises that there is a strong identity of interest between the Government’s wish for effective accountability to capital markets and institutional investors’ objectives of maximising shareholder value.  But it believes legislation is not the right way to achieve this:

• Although apparently unexceptionable, the duty is framed in very general terms, which would be likely to give rise to disputes and, potentially, litigation after the event about whether it had been complied with in particular cases.

• This would in turn encourage a compliance-driven approach by fund managers, designed to avoid litigation rather than fostering a constructive approach.

• The consultation paper’s heavy reliance on the precedent of US legislation misunderstands the very different context there.  Moreover the US practice is entirely concerned with voting and not with the wider issues about shareholder engagement.

IMA therefore proposes a different approach.  We recommend that the industry should draw up a statement of principles for institutional investors, which could then form the basis for agreements between pension fund trustees and fund managers, as recommended in the Myners Report.   Such an approach would be much more likely to deliver the outcomes sought by the Government.

Richard Saunders, Chief Executive of the IMA, said:

 “While we understand the Government’s objectives, the proposals in the consultation document will not achieve them.  Instead they would create a climate of defensiveness, dominated by fear of litigation.  A voluntary approach is a much better way forward and we hope the Government will respond positively to our proposals.”

The full text of the IMA response is attached. 

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For further information please contact:

Richard Saunders, Chief Executive, IMA, 020 7831 0898

Clare Arber, Head of Communications, IMA, 020 7831 0898

Helen Stephenson, PR Assistant, IMA, 020 7831 0898

65 Kingsway London WC2B 6TD

Tel: +44 (0) 20 7831 0898 Fax:+44 (0) 20 7831 9975

www.investmentuk.org

Investment Management Association is a company limited by guarantee registered in England and Wales Registered number 4343737.  Registered office as above.