A Review of Corporate Governance in Uk Banks and Other Financial Industry Entities: the Role of Institutional Shareholders

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A review of corporate governance in
UK banks and other financial industry entities: the role of institutional shareholders Robert A. G. Monks

Robert A. G. Monks, in his article ‘A review of corporate governance in UK banks and other financial industry entities: the role of institutional shareholders’, states that the problem with the British and American corporate governance system is that the majority of the shareholders, both institutional and individual, do not act as owners. The aim of this article is to determine why there is a lack of commitment among the majority of the shareholders and to suggest some measures in order to encourage them to have a more active role in the companies they own. In the first section of the article Monks observes that 30 per cent of the U.S. and U.K. shareholders invest in index mode and 20 per cent, based on mathematical-based algorithms. In both these cases the rulings are made by ‘mechanistic formulae’ with no human decision-making being present. Another 30 per cent rely on their ‘friendly broker’, meaning that only 20 per cent of the shareholders are actively involved in their portfolio companies and are prepared, if necessary, to take steps to ensure that flaws in the governance, strategy or execution by managers are properly addressed. Moreover, the author notes that the number of these ‘intrinsic investors’ (such described by McKinsey, the premier consulting firm for corporate management) may be weakened because of the ‘dirty little secret of benign neglect of conflict of interest’. Monks continues by making a short presentation of the ‘major categories of institutional investors from the perspective of activity encouraging conflict of interest and thus inhibiting responsible activist ownership’.

Furthermore, Monks acknowledges another issue that suppresses shareholder activism – the negative publicity. He…...

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