MAM may not play by Greenbury's rules

The City's biggest pension fund manager, Mercury Asset Management, has told clients that it is prepared to sidestep the Cadbury and Greenbury rulebooks on corporate governance whenever it is in the "economic interest" of shareholders to do so.

MAM issued a plea for flexibility in interpreting the rules in a four- page statement of principles of corporate governance which emerged yesterday, the first time it has set out its views on how directors should run their companies. With pounds 81bn of funds under management, including pounds 53bn in the UK, MAM's equity holdings give it enormous clout in British boardrooms.

A MAM spokesman said: "It is too easy to tick the boxes - we must stand back and ask what is in the best economic interest of the client."

The dispatch of the statement to more than 1,100 MAM clients has coincided with an attack by Lord Weinstock on the way the codes are applied.

After GEC had been forced by the Association of British Insurers to change the pay package of George Simpson, his successor at the helm of the company, Lord Weinstock said the Cadbury and Greenbury codes were "not engraved in stone and brought down from Mount Sinai". He accused some institutions of using the Greenbury rules to persecute executive directors.

MAM is believed to have similar concerns about the impact of a strict interpretation of the codes on companies such as Stagecoach, headed by Brian Souter, and Kwikfit, run by Tom Farmer, where one or two directors have been the driving force behind spectacular performances. The fund management group thinks attacks on them are unlikely to be in the interests of shareholders.

MAM's formal statement to clients says it is "not appropriate to interfere in the details of individual directors' remuneration'' although it does take a view on total board pay and the structure of pay packages.

The statement says: "We do not believe that blanket implementation of the various codes of practice is necessarily effective or desirable."

MAM supports initiatives to raise standards, but the statement adds: "We believe it is impossible to create a single set of rules that is appropriate for every company.

"Indeed, there is a risk that in attempting to produce a single set of rules the substantive issues may be lost.

"The introduction of a code of best practice cannot of itself ensure that companies are managed with competence and integrity and each company needs to be analysed on an individual basis."

The statement seeks to persuade the company's 440 pension fund clients to delegate their voting rights to MAM, so it will no longer have to obtain their consent each time it votes.

The statement says: "Not only do our clients generally wish us to be more active in exercising voting rights, but there are also more issues arising on which voting is necessary to protect shareholder value, and it will not be practicable to consult on each and every occasion."

MAM believes three areas of voting are fundamental to protecting shareholders interests - the election of directors, the issue of new shares and the appointment of auditors.

The statement says: "We regard voting against management as a last resort, to be taken after every other avenue of influence has been exhausted."

Directors' pay should be a fair reflection of individual and corporate success, and should be related to performance. However, MAM is strongly in favour of limiting contracts to 12 months, with exceptions allowed as long as they are for fixed not rolling periods.

Accountability to shareholders over pay is best achieved by all directors standing regularly for re-election and by the remuneration committee chairman being available for questions at the annual meeting, says MAM.

It states that it is prepared to vote against incumbent managements "whenever it is in the economic interests of our clients".

MAM says it also strongly defends pre-emption rights, which give existing shareholders first call on new shares against a growing campaign for a relaxation.