UK's new investor safeguards strike right balance

Britain's new investor safeguards strike the right balance. Loud calls for an overhaul followed corporate governance debacles at Eurasian Natural Resources Corp (ENRC), the oligarch-backed Kazakh miner, and elsewhere. From mid-2014, independent investors in London stocks should get more say in how companies relate to controlling shareholders. But the new rules wisely stop short of giving minority investors too much power.
Several measures are likely to come into force. First, it will become compulsory for companies and any controlling shareholders to sign a code-of-conduct agreement. Second, minority shareholders get to hold separate votes on the appointment of independent directors. Third, they will be able to scotch any financial transaction between the company and the controlling shareholder. On top of this, outsiders might also get enhanced voting power if a controlling shareholder seeks to delist the company or water down minorities' rights. The package should help ensure that companies operate at arm's length from any shareholder, or group of shareholders, that speak for 30 percent or more of the register. They are far from all-encompassing, however.
The remit of the mandatory shareholder agreements is vague, meaning they could be written in terms so broad as to be ineffective. On electing independent directors, minority shareholders can only use their separate vote to raise objections: ultimately, appointments will reflect the wishes of a majority of all shareholders. And the reform allowing minorities to veto financial transactions, meanwhile, merely extends existing "related party" provisions which prevent those involved in a deal from voting on it.
The Financial Conduct Authority, the British regulator, will give fresh powers to minority shareholders in London-listed companies. The new rules are designed to protect the interests of independent shareholders where 30 percent or more of the stock is controlled by a single shareholder, or a group of shareholders acting together. The provisions will apply to so-called "premium" listings and are likely to come into force in mid-2014.
• Written shareholder agreements between companies and controlling shareholders will become mandatory. The FCA said these were intended to "impose a standard of behaviour that we consider to be fundamental to the independent operation of a listed company." Minority shareholders will get a vote on financial transactions between listed companies and controlling shareholders. They will also be given separate non-binding votes on the appointment of independent directors.
David Lawton, the FCA's director of markets, said: "By safeguarding minority interests from abuse by controlling shareholders, these changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account."