Questioning shareholder primacy
Now under consultation by BIS, the proposal is drawing out some interesting responses.
The proposal was included in the BIS consultation paper Transparency & Trust. The idea has already been panned by the Financial Reporting Council, which argued that “If shareholder primacy is removed it may affect the ability of banks to attract future capital.” And, as we noted a few weeks ago, the Institutional Investor Committee has also given it short shrift.
The idea was given a more positive welcome by the TUC, which probably senses the opportunity to have a discussion about other governance models where employees play a greater role. But possibly the most surprising response to the BIS consultation question on this issue came from the Institute of Directors. Although the IoD does not agree with amending company law, as proposed by the PCBS, it is sympathetic to the thrust of the proposal.
It said: “We agree that the directors of systemically important financial institutions have wider responsibilities than simply promoting the interests of shareholders, even taking into account the nuances of the ‘enlightened shareholder value’ concept that is embedded in section 172 of the CA06… In an ideal world, systemically-important financial institutions (or other organisations that are “too big or important to fail”) would adopt some other corporate legal framework in which directors’ fiduciary duties were explicitly framed in terms of promoting broader social or stakeholder objectives, such as the stability of the financial system.”
So banks shouldn’t be PLCs, and their directors should have “social or stakeholder objectives”. That’s quite a big deal surely.