Activists get green light to form groups
CITY watchdog the Financial Services Authority (FSA) yesterday threw its weight behind shareholder activism, saying investors can form groups to oust a company’s board or force it to revamp its strategy without breaching regulations.
The FSA has said the push for activist alliances proposed in Sir David Walker’s recent banking review, designed to encourage stronger corporate governance, is allowed within its rules and those of the European Union.
But the regulator cautioned that group activism must be based on individual issues, rather than investors always grouping to support each other regardless of the issue under debate.
Activists often form groups when rows develop over the future of companies, and often this leads to entire boards being sacked from firms and their assets being sold off.
The Association of British Insurers’ investment affairs director Peter Montagnon described the FSA’s statement of support for activist groups as a “positive move”.
“Clarifying the rules around shareholder dialogue will make it easier for investors to take a collective approach to boards, when individual approaches have failed,” he said. “This is an important part of ensuring that shareholder engagement is more effective following the banking crisis.”
The FSA issued the activism statement after the Institutional Shareholders’ Committee asked for clarity, believing Walker’s Review could be at odds with existing rules.