Mitchells & Butlers - who looks after the small investor?

It is management dogma at most business schools - and certainly with investment 'bankers' - that corporate activists are a good thing. However, the current activity around Mitchells & Butlers (M&B) raises a few points of principle.

First, newspapers report that a group of investors controlling about 40 per cent of M&B's shares are preparing to 'move on the board' (sic). They are 'understood to be acting separately but collectively' . Now it would be interesting to find out what that is supposed to mean. How can you act collectively and separately at the same time?

The same newspaper report also refers to a 'series of letters and telephone calls' in which the shareholders have 'warned the management' and demanded that management take a specific action with respect to its property portfolio. Some of these shareholders might also be interested in entering into transactions with respect to this portfolio.

This situation illustrates a basic problem with the practice of shareholder activism as a solution to the problem of corporate governance: Any communication among investors creates the danger of conflict of interests. Dialogue with management or other investors gives an investor insights into the business outlook of the business and an advantage vis-à-vis ordinary shareholders that are not privy to this information.

Only full disclosure of all communications between management of investors can guarantee a level-playing field for all investors. In addition, a 'quiet period' after any direct communication might also be useful. A few days after any direct contact (and dissemination of relevant minutes of the information exchanged) should be enough given that most investors have easy access to bulletin boards, corporate websites and newswires.

It would also be helpful if all significant proposals are discussed in an open forum that is open to all shareholders and where all proposals are put forward. It is high time that the owners of a business do not only read in the newspaper when major decisions affecting their investment are taken. The good old Annual General Meeting (possibly supplanted by some sort of electronic alternative) would be the most appropriate forum.

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