A Fairer Deal for Equity Investors?

The UK regulator has made it easier for shareholders to engage.

(November 5, 2013) — Investors with minority holdings in the UK’s largest companies have seen their rights strengthened under new measures introduced by the Financial Conduct Authority (FCA).

The UK’s regulator has boosted listing rules in order to protect marginal shareholders, giving these smaller owners of premium listed companies additional voting rights and greater influence over important decisions.

The FCA took the results from 2012’s Kay Review—a consultation set up by its predecessor the Financial Services Authority and the subsequent paper written by London School of Economics professor John Kay on the state of the UK’s equity markets—and used them to create measures that strengthen the voice of minority shareholders without turning minority protection into minority control.

These measures proposed refinements to the definition of controlling shareholders, requirements for the boards of listed companies to confirm compliance with the FCA’s rules, and changes to the rules on cancelling a listing. 

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Other measures included:

1) Ensuring listed companies are run independently of their controlling shareholders, including measures that give independent shareholders a veto over transactions between listed companies and a controlling shareholder when this independence is threatened.

2) Requiring separate approval of independent directors by independent shareholders, in addition to gaining approval from shareholders as a whole.

3) Enhanced voting power for minority shareholders where a company with a controlling shareholder seeks to cancel its listing or remove minority shareholders’ rights. 

4) Requiring greater transparency for listed companies to ensure shareholders have the information they need to exercise their voting rights. 

David Lawton, the FCA’s director of markets, said in a statement: “Active engagement by all shareholders is essential to make markets work well. 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.”

The FCA said it intends to implement the full package of measures in mid-2014.

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