The Institutional Investor Council (IIC), the successor body to the Institutional Shareholders’ Committee (ISC), has started to lay out its stall on possible work programmes. Speaking at the IMA’s annual dinner in the City of London this week, Douglas Ferrans, IMA chairman, outlined his vision of how the IIC would tackle the “endlessly complex” conflicts of interest currently challenging the financial services industry.
In the first instance, the IIC has been charged with leading an investigation into the underwriting fees paid by corporates when they are raising capital through rights issues. The review is separate to the OFT’s own investigation which Ferrans has openly welcomed.
Then, acknowledging the widespread public criticism of the role of investors in supporting good corporate governance standards, Ferrans highlighted the challenge of bank and insurance-owned asset managers potentially jeopardising fee income by speaking out publicly on governance issues. “Only a few brave souls do so, and do so particularly well” he said “But they are in the minority.”
In a hint to possible solutions for overcoming Stewardship conflicts Ferrans was blunt: “We have to act responsibly, and where necessary infor our conflicted parents of our fiduciary duty to our customers. If they don’t like it, it’s clear they should divest themselves of their investment management businesses and only then can the conflicts be conquered and the behaviours altered!”
Ferrans is clearly not afraid to speak his mind. Speaking to journalists in May at the launch of the Rights Issue Fee Inquiry he said that his team would go into the process with open minds but would “lift the drain lids and dig deep to see what’s going on” as “It’s a cartel and it is well worth looking into”. Twelve years ago the Monopolies & Mergers Commission concluded that there was a “complex monopoly” at work, a sentiment echoed by former City Minister, Lord Myners.
Although Ferrans is keen to avoid accusations of “banker bashing” market observers are hoping that if RIFI can prove one subset of market abuse, it may lead to opening up other examples of oligopolistic behaviour elsewhere.