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Shareholders lost a lot of money as a result of the banking crisis, partly because none carried much clout in the boardrooms so they were easy to ignore.
Now, a year after the collapse of Lehman, and following much prompting from Lord Myners on behalf of the Government, the Institutional Shareholders Committee (ISC) has gone public with what it hopes to do to improve things.
First, it is publishing a code and inviting asset management organisations to sign up to its principles. It will not be appropriate for some, and others may not want to make such a commitment, but the hope is that most will. Their customers, pension trustees or individual investors, will be able to see clearly on the web which individual managers are committed to active engagement with the boards of the companies in which they are invested, and which just want a free ride.
Those who want to do nothing will then have to be prepared to explain to their clients why they think that is in the interests of their customers, which will clarify and hopefully strengthen the chain of accountability on the shareholder side.
The second plank of the code is to encourage co-operation and joint action to compensate for the weakness which comes from being a fragmented industry. Part of this is to encourage the interest of overseas sovereign wealth funds and overseas pension funds which invest in the UK, and whose influence has increased as that of traditional British-based funds has decreased. The aim overall is to create a nucleus for collective action when it appears necessary.
Third, though separate from the code, the governance of the ISC itself is to be examined to see if it can get closer to asset managers without putting out of joint the noses of the four trade associations — the Association of British Insurers, the Investment Management Association, the Association of Investment Companies and the National Association of Pension Funds — that currently support it.
On one level it may not sound much, but in the context of the way the City works and where it is coming from, it is a significant attempt to create a structure in which shareholders cannot be ignored. And at least it goes with the grain of how the place works.
That is more than one can say about some of the proposals coming out of government, and which seem to lean more towards currying popularity with voters than delivering practical solutions to difficult problems.
In particular, the rigour with which the Financial Services Authority is interviewing would-be directors of banks makes one wonder what happened to the right of shareholders to appoint their own boards. The proposal expected in the Queen's speech that would allow the regulator to set aside banking employment contracts it does not like seems the thin end of an even bigger wedge — overturning the sanctity of the rule of law and contract. Even when emotions are running high as they are at present, this is not something to be trifled with.
The rule of law and the impartiality of justice really do underpin the integrity of London as a financial centre. There are a major reason why business stays here rather than migrating to the Middle East or Shanghai. A reputation that has taken hundreds of years to build up must not be tossed away simply because the message plays well with the voters.
Repairing the City's reputation
Bankers may be first in the firing line but the reputation of the entire financial services industry has to some extent suffered in the financial crisis.
From the perspective of much of the country, everyone who works in the City is a banker, is ridiculously overpaid, and shares the blame for what has gone on. This view is also quite prevalent among politicians of all parties in Westminster, which means the fact it is unfair to 90% of those working in the Square Mile is beside the point.
It used to be the case that there was simply a widespread ignorance of what went on in the world of financial services, but the events of recent months have mixed that ignorance with antipathy — and that is potentially hugely damaging.
New Lord Mayor Nick Anstee picked up on this at last night's Lord Mayor's banquet when, before an audience that included the Prime Minister, he talked of the need for a new contract between the financial institutions and the society they serve.
It also plays to the imminent launch of TheCityUK — the new financial services marketing agency that has been formed in response to the reports on City competitiveness produced by Sir Win Bischoff and Bob Wigley, and which will be chaired initially by Clifford Chance senior partner Stuart Popham.
This body will make the case for financial services to home as well as foreign audiences — and not a moment too soon.
