1. CORPORATE GOVERNANCE – THE INSTITUTIONAL INVESTOR‘S VIEWPOINT Peter Thompson Chairman National Association of Pension Funds

2. “It’s only when misgovernment grows extreme enough to produce a revolutionary agitation among the shareholders that any change can be effected” Herbert Spence 1854

3. “2/3 UK investors no longer feel confident investing in the Stock Market as a result of fraud and accounting problems at Enron and Worldcom” Survey of UK investors by Cavendish Asset Management, October 2002

4. Shareholder Activism “If fund managers are truly to fulfil their duty of seeking to maximise value for their shareholders, then there will be times – certainly more than at present – where intervention is the right action to take” Paul Myners – Institutional Investment – March 2001

5. Shareholder Activism “It is crucial to effective corporate governance that the owners of the company hold the Directors to account for the Company’s performance” DTI Modernising Company Law – July 2002

6. “87% pension funds exercised their voting rights over the last year.” Hewitt, Bacon and Woodrow, Summer 2002

7. Institutional Shareholders’ Committee NAPF + ABI + IMA + AITC “The responsibilities of institutional shareholders and agents: Statement of Principles.” 21 October 2002

8. Aim:to ensure that shareholders derive value from their investments by dealing effectively with concerns about underperformance. N.B.aim NOT to micromanage

9. Intervention where necessary on: ● strategy ● operational performance ● acquisitions / disposals ● failure of independent directors to hold executive to account ● failing internal controls ● inadequate succession planning ● lack of compliance with Combined Code ● remuneration / incentives / severance ● corporate social responsibility

10. Action by way of: ● meetings with management ● discussions with the company’s advisers ● meeting with Chairman or NEDs ● joint intervention with other institutions ● public statement prior to AGM / EGM ● submitting resolutions ● requisitioning an EGM to change the Board

11. Accountability through: ● published policy on activism: how companies will be monitored; policy on engagement, intervention and voting ● regular reporting back to shareholders by agents, including records of votes cast

12. KPMG Survey of fund managers 2002: ● >90% want independent third party assurance (e.g. NAPF’s Voting Issues Service) over a firm’s corporate governance ● >80% would pay 14% more for shares of demonstrably well governed plcs. ● N.B. McKinsey survey October 2002 found 14 – 22% price premium

13. Conclusion ● shareholder activism important if long term shareholder value to be achieved ● institutional owners have major role to play, directly or through their agents ● watch this space…