Obama matters to every British investor and pension fund
The Obama victory
has been hailed as a historic moment but what does it mean for British
pensioners, institutional investors, shareholders and companies? Very few
people have completely grasped how ordinary people in the UK own large
swathes of corporate America, through our pension funds and investments.
The credit crunch which started in the US,
resulted in billions of pounds being wiped off our pensions and investments
overnight, this could have been avoided if the owners of those companies had
There will be huge pressure on Barack Obama
and his new Treasury Secretary to restore confidence in the banking system
and stabilise the American economy.
Despite the fact that governments have
stepped in around the world to help ease the situation, there is still
growing concern around the safety of our savings, with trust and
accountability in the entire financial system continuing to suffer severe
America is at the forefront of those
worries. Shareholders' rights in the US are not as strong as they are in the
UK so even though you and I are owners, by default, of big companies in
America, our powers to hold these businesses to account are limited. Most of
us are still oblivious to the fact that our pension schemes are invested in
companies that are taking unacceptable risks on our behalf and paying
executives excessive and unjustifiable bonuses — all things we can do very
little about because of our limited rights as shareholders in the US.
However there may be hope in sight as
Washington will be powerfully motivated to protect hard-hit pension funds.
In Obama's first 100 days of office we can expect to see the rights of
shareholders strengthened. He understands the need for change to the
economic landscape to prevent a recurrence of the greed and overtrading
which have driven the current crisis.
Obama needs owners to shoulder their
responsibilities so that the regulators can focus where they can best add
value. This will include a “say on pay”, and access to the proxy (the
ability to propose directors to the board).
There may also be legislation that will
breathe new life into defined benefit retirement plans — where the employer
has responsibility for managing the pension fund — rather than contributory
schemes — where the onus has been on the employee. This will spur
institutional investors such as pension fund trustees (the guardians of our
retirement income) to take up their responsibilities as owners and will give
important new tools to do the job.
Given the already more open world view of
the Obama administration, I expect this to become a two-way exchange
internationally, with the US providing important leadership in addition to
borrowing practices from abroad.
These initiatives will lead to more
meaningful director elections and more accountable boards, to the long-term
benefit of us all as corporate owners through our pensions and investments.
Obama's team have been for some time working
with the current regime to ensure a smooth transition and have been involved
with many of the decisions on bailout packages, so these are unlikely to be
I hope that pension funds and other
institutions will rise to the new opportunities that they are given by his
leadership to create a stable platform for future growth. In any case, we
are at the beginning of an exciting moment in the quest for an accountable
capitalism. Some on Wall Street do worry that the Obama Presidency will
inexorably mean greater regulation and red tape.
But I believe a more constructive dialogue
between companies and shareholders in the US will create a more sustainable
solution to the credit crisis and a better future for all of us.
Colin Melvin is CEO of Hermes Equity Ownership Services.
© Associated Newspapers Limited 2008