UK - Institutional investors put short-term gain ahead of long-term shareholder value, a new study shows.
Directors claim only 3% of institutional investors look to generate long-term value.
The survey – carried out by the Institute of Directors with law firm CMS Cameron McKenna – claims red tape is preventing directors talking to shareholders which, in turn, increases the likelihood of legislation on boardroom activity.
IoD corporate governance executive Patricia Peter said: “A director’s duty is to secure the long-term value of the company, but in practice this often translates into compliance with ever-increasing regulation, rather than broader aspects of strategy and governance.
“The survey reveals that directors know what they should spend time on, but that in practice they do not always achieve this balance.”
CMS Cameron McKenna partner Sean Watson said: “Directors are rightly concerned about the threat of legislation that they face and they must use every opportunity to find out the concerns of their shareholders.”
But, he said, shareholders must co-operate.
He added: “If voluntary regulation is seen as having failed, there will be great pressure for the government to legislate.”
Nearly three-quarters of directors (72%) thought it was “very” or “quite” likely that shareholders treated compliance with corporate governance guidelines – such as Higgs and Smith – as “mainly a box-ticking exercise”.
Half of respondents from the FTSE100 index and 60% on the FTSE350 agreed.
And just under 40% of FTSE100 respondents thought institutions were likely to use the threat of a negative advisory vote on directors’ remuneration to pressurise the board to change other aspects of the company’s strategy.
This was despite the fact only 17% thought their company would discuss directors’ packages with institutional investors before agreeing them.
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