Northern Rock: Hedge funds prove shareholders have too much power

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The Guardian has reported that:

One of Northern Rock's largest shareholders has challenged the bank's board to a public fight over its future at a meeting of investors scheduled for next week.

RAB Capital, the hedge fund which owns almost 7.6% of the bank, said it would attend the extraordinary shareholder's meeting on January 15 to persuade rank and file shareholders they should prevent the board selling its assets "on the cheap" or succumbing to "political pressure".

Apparently RAB chief executive Philip Richards has said

People seem to have ignored the fact that the company remains owned by its shareholders.

I find this pretty offensive. RAB is working with Monaco based SRM Global. And their aim is simple: to exploit the current crisis at Northern Rock to make money at cost to the government, without whom Northern Rock would be bust.

There's only one consolation in this: they are showing how flawed is the model of share ownership being at the core of corporate governance. When, and in this case I think it will be when and not if, people realise that it is the ordinary tax payer of the UK who is being held to ransom by a bunch or exploitative gamblers questions will increasingly be asked about why board representation and ownership status is reserved for control by only one source of finance and one provider of risk equity in business.

Lenders have rights to.

So too do employees.

And so to do long term business suppliers.

All three of these groups normally have much longer term, more constructive, risker and economically important relationships with our largest companies than do the shareholders (or more accurately, the investment managers who represent shareholders). In which case they too need to be represented on boards. They too need to be recognised as users of financial statements. They too need to have power over key decisions.

So thanks RAB and SRM: you're proving the case for corporate reform.


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