Pension Funds Criticize London Stock Exchange’s Governance Standards

A coalition of local council pension funds has renewed its criticism of the London Stock Exchange (LSE) over perceived efforts to diminish boardroom standards for listed companies. The Local Authority Pension Fund Forum (LAPFF), representing 87 local authority schemes, expressed strong concerns about recent reforms proposed by LSE CEO Dame Julia Hoggett.

Dame Julia, who also heads the Capital Markets Industry Taskforce (CMIT), has been associated with efforts to resist strengthening the UK’s corporate governance code. This includes the withdrawal of proposed rules that would have mandated companies to disclose their Environmental, Social, and Governance (ESG) metrics earlier this year.

Dame Julia has voiced concerns about the compensation of chief executives at LSE-listed companies, arguing that their pay is insufficient compared to the substantial salaries and bonuses offered in the United States. This has raised alarms about potential relaxations in governance rules regarding executive pay. One such rule requires companies to consult with investors if more than 20% oppose directors’ remuneration.

Doug McMurdo, chairman of the LAPFF, emphasized that the current push for reform lacks sufficient analysis and evidence to withstand market scrutiny. He affirmed the forum’s steadfast position against these changes in a letter dated August 30. This marks the third instance in which the LAPFF has raised objections to the LSE’s governance direction, which manages assets totaling £350 billion.

The CMIT argues that loosening listing rules would encourage more company founders to choose London for initial public offerings (IPOs) instead of markets like New York. The LSE has faced mounting criticism for a decline in listings, highlighted by British microchip company Arm’s decision to list in the U.S. in 2023.

McMurdo stated, “The cost of capital is determined by investors in the markets, not by lawyers or the sell-side.” He criticized the CMIT for representing only specific interests, arguing that this approach demonstrates how not to govern capital markets. The LSE Group has been approached for comment regarding these ongoing concerns.