The New Government Shareholders

Call them the new sovereign wealth funds. Now that U.S. and European governments have turned into major shareholders, the question that presents itself is how they will behave as owners, according to a Global Proxy Watch report.

The UK’s Shareholder Executive was opened in 2003 as a model to guide the government’s performance as a shareowner. According to GPW, its expanding portfolio of 29 companies range from British Energy to Northern Rock. The agency advises UK officials on topics ranging from governance and strategy to board appointments and remuneration.

The UK Treasury has built this model into its bailout plan. As a result, rules for banks it’s buying into and tasks such as appointing independent non-executive directors and forming dividend policies are built into the model.

U.S. Treasury Secretary Henry Paulson has noted that while stock purchases have been a welcomed action, the plan he announced on Tuesday gives the government limited rights to vote shares or appoint directors.

The question has come up before. Sovereign wealth funds in Asia and the Middle East, which took large stakes in some of the financial sector's largest firms, have been watched closely for signs of how active or passive they will be as owners and whether or not they would ever put national interests ahead of their interest as shareholders.

The International Corporate Governance Network’s March statement called on state shareowners (sovereign wealth funds etc.) to secure value through responsible approaches to share ownership, including communication between investee companies on strategy and governance and considered voting at general meetings, according to GPW.

The bottomline: empower state owners without muddling the process with politics.