Business Comment: Pressure groups have their uses

Perhaps predictably, the much-hyped Shell annual general meeting turned out to be a bit of a damp squib, a rather tedious and long drawn out affair at which the various resolutions on the environment and human rights were overwhelmingly defeated by proxy. The pressure groups did not come away empty-handed, however, and they can genuinely claim after yesterday's events that tactics of this sort work. Even Pirc concedes that three out of five of its demands have already been answered while the company is well on the way to addressing a fourth. Notwithstanding what Shell directors say, it seems unlikely this would have happened in the absence of campaigning shareholders.

The affair has raised a number of broader corporate governance issues. In the City, and to some extent at Shell, it became seen as an issue of principle about the board's right to manage. It is not the place of shareholders, the argument goes, to dictate to the board its policy on human rights and the environment, just as it is not the place of shareholders to dictate to the board on employment policy or the finer details of investment strategy. These are matters for management. In the event of poor or cavalier management, markets can properly exercise control either by clearing them out, or by depriving them of capital.

In the real world, however, nobody, even in the City, really believes in applying this rigid separation of ownership and management rights. Big institutional shareholders often become actively involved in management issues, if only by encouraging executives, sometimes through non-executives, to do certain things and discouraging them from others. The argument used by campaigners in this instance that there is a very good business case for applying the highest environmental and human rights standards is only a more broad-brush version of the same thing.

In truth, it is actually a thoroughly good thing for managements to be held to account for their actions over a wide range of different issues and practices. The chief executive of a large multinational possesses a form of absolute power which goes way beyond that of a government minister or official. Most of them exercise it responsibly, but it ill becomes these very highly paid people to complain about the usually legitimate concerns of campaigning pressure groups, or their increasingly effective attempts to hijack the ordinary rubber-stamping business of company meetings. Managements are unaccountable enough already. Attempts to make them more so, even by sometimes misguided and ill-informed pressure groups, are only to be applauded.