UK: institutional investors and bankers' pay - Myners interview

An important theme in the development of the UK's Combined Code on Corporate Governance is the role of institutional investors. The Cadbury Committee observed in the Cadbury Report, which provided the foundation for the Combined Code (para 6.16): 

Because of the importance of their collective stake, we look to the institutions in particular, with the backing of the Institutional Shareholders’ Committee, to use their influence as owners to ensure that the companies in which they have invested comply with the Code".

The importance attached to institutional investors continues to be made in the Combined Code. Main Principle E.1. provides that institutional investors "should enter into a dialogue with companies based on the mutual understanding of objectives". A supporting principle provides that institutions should apply the principles set out in the Institutional Shareholders' Committee's The Responsibilities of Institutional Shareholders and Agents – Statement of Principles.

In an interview with yesterday's Observer newspaper, Lord Myners - the Financial Services Secretary - suggests that institutional investors should have done more to challenge the remuneration structures adopted by UK banks. Myners observes: 

"I'm disappointed there's not more evidence that institutional investors have been seized by the challenge of addressing the shortcomings that have emerged in corporate governance as a result of this crisis ...Institutional shareholders need to be asking themselves: were they appropriately engaged in asking questions about the risk appetite of our banks? Were they asking sufficient questions about competency of directors, and were they appropriately engaged in examining and approving compensation cultures?"