Pension funds renew attack on London Stock Exchange

An alliance of dozens of the biggest pension funds in Britain has renewed its attack on the London Stock Exchange, warning that it should not be pushing to weaken boardroom standards in listed companies any further.
Council pension schemes with assets of £350 billion have repeatedly called on Don Robert, chairman of the parent London Stock Exchange Group, to justify claims that the old listing rules were damaging London.
The Local Authority Pension Fund Forum said that it had not heard back from Robert over a third letter of complaint, sent on August 30, in which it said it was “resolute” about its concerns about the role of the LSE chief executive Dame Julia Hoggett.
This year the forum said Hoggett risked “poisoning the well” of London because her campaign to reform the listing rules weakened some investor protections. It also had concerns about the absence of any asset owners on the influential Capital Markets Industry Taskforce (CMIT), which she chairs.
The alliance of 87 council schemes is concerned that the taskforce is pushing the Financial Reporting Council (FRC) to soften corporate governance rules after winning the listing rules campaign. “It is now clear from its May 2023 minutes that the CMIT is turning its attention to corporate governance,” a spokesman for the forum said.
Its members are concerned that there could be a watering down of the rules governing boardroom pay. Hoggett has gone on record to argue that some London listed company bosses needed to be paid more to deter them from moving their listings to the US.
Some shareholders are worried that there could be a campaign to scrap the rule that requires companies to engage with shareholders when more than 20 per cent of them revolt over remuneration arrangements.
Another issue would be any weakening of the “going concern” rules which might make it more difficult for investors to spot when companies were getting into difficulties or hiding potential fraud.
In January the FRC abandoned plans for new rules over diversity and ESG [reporting on environmental, social and governance performance] after Hoggett complained that the regime was not so much “comply or explain” as “comply or else”.
The forum has repeatedly pointed out that the CMIT has no direct representatives of the beneficial owners of shares in London such as pension funds, although its members do include the chief executive of Schroders, Peter Harrison, and the chief executive of Phoenix Group, Andy Briggs.
The forum’s spokesman said CMIT members were connected with some of the most value-destroying companies in London, including Aston Martin, NMC Health and Carillion. “Bearing in mind these investment disasters, the CMIT should be doing some navel-gazing perhaps, rather than lobbying to water things down yet more.”
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The CMIT has argued that softening the listing rules will attract more company founders to choose London over other jurisdictions as a place to float and will allow London listed companies to be quicker and more nimble in doing deals.
Doug McMurdo, the chairman of the forum, wrote in his latest salvo to Robert: “We would point out that the cost of capital is set by investors in the markets, not lawyers, nor the sell-side, yet those are the only interests that have been represented by the CMIT, in our view.” It was “wholly unrepresentative” of the interests of asset owners, he said.
“It is a case study in how governance of capital markets should not be conducted,” he added. McMurdo has previously pointed out that forum members own about 1.5 per cent of LSEG, stakes worth around £800 million in aggregate.
A spokeswoman for LSEG said it had no record of receiving the August 30 letter.
“LSEG works with stakeholders from across the UK’s capital markets to ensure our markets are working as best as they can for all participants,” the spokeswoman said. “Where we believe aspects of the regulatory regime are not working as well as they should, or are hindering activity in our markets, we believe it is our duty to address these by engaging market participants, regulators, and policymakers.
“Key components of the UK’s regime have not been reformed for 40 years and have left UK listed companies and the UK capital markets unduly constrained compared to their global peers.”
The FCA listing rule changes, which were introduced in July, were “a good balance between empowering investors through good disclosure, without preventing companies from accessing our markets due to unnecessarily onerous eligibility requirements”.
Hoggett was approached for comment.