Shareholders should be active owners of the companies they invest in, engaging with management and taking action if things are going wrong. But there can be a tension between shareholder activism and the principles of shareholder democracy, which seek to prevent a vocal minority imposing their will on the majority.
The overwhelming pressure at the moment is rightly for more activism. If investors had been a bit more on the ball with Royal Bank of Scotland they could have saved us all a great deal of money.
The Financial Reporting Council today starts consulting on the stewardship code for institutional investors. Although some City sceptics dismiss it as so much hot air, this could be a useful lever to encourage engagement by shareholders.
Yet, while we applaud activism by institutional shareholders, the Mitchells & Butlers case has exposed what looks a bit like double standards. This column was not alone in supporting the board of the pub group in its action against Joe Lewis, the billionaire who owns a 23 per cent stake. The board sacked four directors and asked the Takeover Panel to assess whether they were acting in concert on behalf of Mr Lewis and investors owning another 17.5 per cent.
On Friday, the Panel ruled that there was no evidence of a concert party. Supporters of this decision point out that had the 23 per cent shareholder been, say, Legal & General rather than the vehicle of a Bahamas-based billionaire, its attempts to influence a company that had managed to squander £500 million of investors’ money might have been looked upon rather more favourably.