Last week the Serious Fraud Office took the innovative approach of using proceeds of crime legislation to recover dividends paid by Mabey and Johnson Limited to its parent shareholder, as we reported in this post. Mabey and Johnson had previously admitted corruption and breaches of UN sanctions.
This was the first time that the SFO has pursued dividends paid to shareholders who may be entirely unaware of the corrupt actions of the company paying the dividend. The SFO’s Director, Richard Alderman, stated his belief that institutional shareholders should “satisfy themselves” as to the business practices of the companies in which they invest. That provoked various comment that the SFO was adding to the governance burdens placed on institutional shareholders (see, for example, in the FT, “Fund managers should not have to police bungs abroad“).
“There are other cases we are looking at where we shall do this again”
In a speech yesterday at a Transparency International Anti-Bribery Training Launch (and see here for the free Bribery Act training materials made available at that launch), Mr Alderman reacted to this criticism and stressed his view that investors have a duty to engage with their investee companies on corruption and compliance issues:
“Many of you will have seen the press coverage last Friday of an innovative result by the SFO in which we focused on dividends paid out by Mabey & Johnson to its shareholders. We recovered a portion of the dividends….
I was very interested to see the commentary on the decision. One comment, for example, by the distinguished academic and practising lawyer, Professor Jonathan Fisher QC, was that the SFO was pushing the law to the limits. I was in fact very pleased with that comment. I see the powers that we have been given as being powers to do justice. They are not just formal rules; they are there for a purpose and that purpose is justice. If justice means that we should be pushing the legislation to its limits, then so be it. There are other cases we are looking at where we shall do this again.
There were other comments as well on how wide this decision went. Also, there was criticism about what was seen as a further burden on shareholders, particularly institutional shareholders. I have to say I do not understand that.
Institutional shareholders are not just passive recipients of dividends; they also have regular discussions with the management of the businesses in which they hold shares.
I am going to have discussions soon with representatives of institutional shareholders. I am going to ask them whether any of them have asked management if they are satisfied that their companies have adequate procedures under the Bribery Act. If they have not asked that question, I shall want to know why not. After all, we all know that a corruption investigation can have a devastating effect on the share price of a company. If institutional shareholders are not concerned about that, then it seems to me that they are not living up to their ownership responsibilities and are not doing what society expects from them.”
Presumably Mr Alderman will be discussing these matters with long-only shareholders, and not with hedge funds.
Friendly Corporate PSL
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