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New law proposed to protect private shareholders

Created:

18 March 2009

Updated:

23 March 2009

Written by:

Claer Barrett

A bill designed to make public companies more accountable to private shareholders was presented in the House of Commons this week by the improbable coalition of Bill Cash (Conservative eurosceptic) and Frank Field (Labour free-thinker). It's unlikely to make it onto the statute book, but nevertheless focuses attention on some pertinent issues.

The Protection of Shareholders Bill proposes amending the Companies Act to force all quoted companies to appoint a shareholders' committee of up to six private shareholders to better align their ownership influence with the major institutions.

"The function of this committee is to encourage and enable regular, systematic and, where necessary, urgent communication and consultation on a confidential basis between the directors and the members of the company on matters of concern to them," it reads.

Members would be elected by other private shareholders, and would meet quarterly with a designated board director. Companies would also have to "make available...the means to communicate with shareholders on relevant matters with the same regularity and on the same basis as the directors," including those who invest through nominees.

The Bill is fully supported by the UK Shareholders Association (UKSA), which says it is "a long-overdue recognition of the governance vacuum".

"Private shareholders, who are essential to enterprise, are virtually ignored with no effective voice or means of communication," argues UKSA chairman Martin White. "Their role is regulated to a neutered voice at AGMs. This bill will oblige directors to give proper attention to the interests of all owners of the business."

UKSA wants the committees to take directors to task on matters such as takeovers or remuneration packages before these are presented as a fait accompli at the AGM. It argues that access to this level of information is "consistent" with the usual relationship between companies and major institutional investors.

UKSA has risen to prominence in the wake of the collapse of Northern Rock and Bradford & Bingley, campaigning for compensation for private shareholders. Viewed cynically, the Bill could be just another addition to its list of lost causes. But the increased focus on corporate governance caused by the banking crisis gives weight to its argument.

"In essence, this is the right problem, but the wrong solution," says Mark Goyder, founder of business think tank Tomorrow's Company. "I am totally sympathetic to UKSA's frustrations, but a holistic solution is needed. You cannot enfranchise a particular group in isolation from finding a proper solution to the wider stewardship vacuum."

Add your comments below - or sign the UKSA petition here...