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Thursday, 12 March 2009

Black pot speaks unto kettle

It is amazing that he is even invited to leave his bolt hole in Canary Wharf, but Hector Sants has been speaking at a Pension Fund conflab in Edinburgh. For the record, his outpourings are here, but the man should clearly be kicked out for his past failures.

Amongst the pearls that fell from his lips was the following:

Shareholders must also take responsibility to be active individually and more importantly, in collaboration with other investors, to engage with senior management and Non-Executive Directors in companies and question the effectiveness of the construct of their boards. The FSA is keen to encourage greater dialogue between the regulator and investors and we would certainly like to hear when any issues or risks you raise are not being addressed.

At this point one might be tempted to tell Sants that he should look at his own failings before criticising others. But he continues:

"Turning to you as investors, the question I would like to focus on is whether you all knew and understood what you were buying. The crisis has arguably been driven among investors by an intense search for yield; a desire to gain as much as possible at a 'risk free rate'. These imbalances stimulated demand which has been met by a wave of financial innovation in the form of complex securitisation. How many of these different ways to satisfy demand and "add value", by offering investors more combinations of risk and return more attractive than those available historically, were truly understood?"

Indeed, it appears that Sants fails to see the irony or hypocrisy of his own track record, but he continues:

"It is critical to recognise that the principal responsibility for managing firms responsibly remains with the management of the firms and that shareholders are the principal mechanism for holding these managers accountable."

Did I hear that right? Shareholders have a responsibility to hold directors to account? Not at all, shareholders can buy shares, put them in the bank and go cruising round the world if they wish. They have a right, but no such duty, surely. But Sants went on with the following summing up points:

"Shareholders going forward, have a duty, an obligation to make that
oversight role more effective."

So what is he going to do next? Regulate non-compliant shareholders. The man is clearly deranged.

But then we know Sants rhymes with pants. Need I say any more?


Alfred T Mahan said...

Saying shareholders have duty is going a bit far - duty to whom? - but Sants does have a point when he says that they're the principal means for holding errant managers or directors to account.

Unfortunately, the way things are structured means that all the cards are in the hands of the executive officers of a company so shareholders have little real power. And the majority of shareholdings are through funds - pensions or what have you - that are managed in turn by the peers of the executives, with little incentive to try to reduce their pay.

Anyone who could devise a sensible method of altering that balance in favour of shareholders without bringing in the government would have my support.

Anonymous said...

We are getting closer every day to the perpetrators of this global disaster. Gordon says it wasn't him or his government, can't have been the banks because they are suffering, but the regulator is surely trying to give us a hint with this speech. I am feeling a little bit nervous now. He is closing in on the small investors, those who have sought to turn a modest investment into something that might buy a loaf of bread when they hit 65. LOOK OUT

Alex said...

@Alfred T Mahan:
Sants is a regulator of Financial Services. It is no business of his how shareholders deal with companies in which they invest.

Pension funds do have a duty of care to their members, but that obligation may be fulfilled by avoiding those companies that have unhelpful policies.

The obligations of directors are set out in the Companies Acts, and that is all the regulation that Mr Sants or any other regulation should care about for most companies.

In the particular case of the banks, there is a need for more scrutiny, and the responsibility for that falls to .... Mr Sants.

It is clear that he can't do the job he was supposed to do, and now he is going round telling other people what to do.

Albert M. Bankment said...

Today's white Times has an article which says that institutional shareholders of RBS wanted a resolution at last year's AGM requiring all directors to be up for approval annually, instead of every 3 years. This was to allow them to express their fury at the catastrophic ABN-AMRO buy.

The FSA vetoed this, as it would cuase instability. So, they tried to do precisely what Hector Sants criticises them for not doing, but were thwarted by ... the FSA. what a hypocritical little tosser that man Sants is!

Anonymous said...

Couldnt agree more, Sants should go (as should King). I think its also worth noting that during the height of the crisis Sants was performing two roles. In response to his abject failure to fulfil his first role (Head of Wholesale Markets Regulation) he was promoted to CEO of the wider organisation leaving his former role, arguably the most important department in the crisis, leaderless for c.12 months...?! Sants has no shame to try and continue in his role. He should be sacked.