Corporate governance and SRI enthusiasts in the securities industry need to remember the company they keep. The New Labour government long ago identified regulation as a cheap alternative to nationalisation as a means of directing investment and obstructing the workings of the capital markets, and the UK Trades Union Congress (TUC) has now come to the same conclusion. In a paper published today, the TUC urges trade unions to use their power as shareholders “to make companies more socially responsible … stop excessive executive pay and to act against other failings in corporate governance.”
The new publication calling on trade unionists to join the shareholder activism bandwagon, Working Capital, was published today to coincide with the TUC’s “Fair Shares” conference. It is aimed specifically at the 900 members of the TUC Member Trustee Network: union member pension fund trustees who have collective responsibility for invested funds amounting to around 260 billion, or a third of total UK pension fund assets. It promises them a programme of training for pension fund trustees to help them understand investment and governance issues; promotion of employment practices as an important area of company analysis for investors; and surveys of fund managers’ voting records on controversial issues.
Significantly, Gordon Brown, the UK Chancellor of the Exchequer, has written a Foreword to Working Capital’, in which he writes: “I commend the TUC for this effort to develop a distinctive trade union agenda on institutional investment . . . Pension funds and insurance companies hold a huge pool of capital in the UK and the decisions taken by institutional investors affect the prosperity of each of us individually, and of the nation collectively. I am confident that institutional investors, committed to the active stewardship of their assets, can help to ensure that British companies are productive, responsible and entrepreneurial.”
Brendan Barber , TUC General Secretary Elect, added: “Working people indirectly own most UK shares through their savings in pensions and insurance policies, so it is workers’ capital that is being managed by institutional investors. Trade unions have a duty to ensure that capital is invested sensibly, efficiently and in a way that does not cause harm to the very workers who have generated it. By highlighting institutional investment as a new area of work for trade unions we hope to encourage the development of a long-term and responsible investment culture in the UK that meets the needs of union members both as investors and employees.”
Working Capital argues that, with the current concentration of institutional investment, pension fund trustees have significant influence and responsibilities. It also notes how institutional investors have sometimes damaged employee interests “even though the money they are investing is workers’ capital.” In particular, it castigates investors for backing “needless merger and acquisition strategies, job lay-offs and other activity that has not delivered long-term shareholder value or been beneficial to employees.”
The paper lays out the various points at which trade unionists can exert pressure on fund managers “in order to make sure that the capital that working people generate is invested in their best interests. In addition to educating trustees this will include working with analysts to help them factor employment issues into company analysis, and co-operating with institutional investors to address issues of common concern in investee companies.”