Institutional investors backed banks in run-up to crash

The vast majority of institutional investors did not challenge the governance and remuneration schemes of leading banks in the run up to last year’s financial crisis, claimed a leading workers rights group.

In particular fund managers failed to challenge the takeover of Dutch bank ABN Amro by the Royal Bank of Scotland (RBS), a move widely criticised as a disastrous takeover.

These were the findings from an analysis of the voting records of 20 fund managers and pension funds between July 2007 and July 2008, carried out by the Trade Union Congress (TUC).

The survey found that only one investor—the Co-operative Insurance Society—opposed the acquisition of ABN Amro by RBS. Neither did investors signal much concern about remuneration at the banks, added the survey.

“The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so.

TUC general secretary Brendan Barber

The former CEO of RBS, Fred Goodwin, who was the driving force behind the bank’s disastrous acquisition of ABN, recently agreed to take a lower pension following a public outcry over his £700,000 a year early retirement pension. Goodwin opted to reduce the lump sum payout and take a smaller annual pension of £555,000.

Even more worryingly, according to the TUC, with fewer fund managers responding to the survey this year, it is likely that those who take social responsibility seriously are over-represented in the responses.

In the wake of one of the biggest ever financial catastrophes, when many investors failed to properly engage thus contributing to the problems, the need for investor accountability is greater than ever, said the TUC.

TUC general secretary Brendan Barber said: 'The theory is that in modern capitalism company boards are accountable to their owners, the shareholders. But this is far from what actually happens. The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so.’