The fund management industry is failing to hold highly paid executives to account and the problem is getting worse, star fund manager Neil Woodford says in a report written by Conservative MP Chris Philp.
Woodford adds short-termism is “frustratingly rife” in the fund management industry and it is getting worse as managers “fail to act like owners” because they are “borrowing stock rather than investing in it”.
The star fund manager says that the UK needs to learn from best practice in Europe to address the issue.
Woodford is joined by former City minister and ex-chairman of M&S Lord Myners in the introduction to Philp’s report, which has been published by the High Pay Centre, a think tank dedicated to the issue.
It calls for the mandatory publication of pay ratios, as well as a shareholder committee with at least one employee representative to address pay and make recommendations on director appointments.
Philp, a member of the Treasury Select Committee, describes the rise of the “ownerless corporation” and argues shareholders are not exercising proper oversight of the companies they own.
Woodford says too many firms separate corporate governance activities from fund management activities “with the result that engagement is often not as effective as it should be”.
In contrast, Woodford says corporate governance has always been “vital” to his investment process.
“I strongly believe that I should represent my investors’ best interests in my discussions with management teams.
“This means doing everything I can to ensure that the executive and board of a company are aligned with shareholders and the course they set for a business will deliver long-term shareholder value.”
Woodford says this is not a view shared by others in the industry and that the problem was “getting worse”.
Last month, Woodford Investment Management surprised the industry when it revealed it had altered its own remuneration structures and scrapped staff bonuses.
Myners also takes aim at the fund managers “creating portfolios with investments in several hundred different companies”.
“They are driven by the short term with qualified interest in the long term, largely as a result of client focus on short term performance versus a diversified index or benchmark.”
Myners says the proposals put forward by Philp would not be liked by fund managers or company directors because they challenge the existing order, but he argues they are rooted in existing practices from other geographies.