Voting with your feet

I mentioned L&G sticking their necks out in the governance debate recently. Well you can download their thoughts here. One bit that I like in their commentary is the dismissal of the argument that if big investors don't like a company they can just sell. Apart from the fact that this isn't much good for UK Plc, I'm also doubtful that it actually happens like that in practice, at least at the big houses. They underweight, rather than sell out alot of the time.

L&G also doesn't buy the argument, but for different reasons:

investors ‘voting with their feet’, is the most commonly cited reason for a lack of engagement. However, while this action is possibly logical for shareholders who are not closely connected with the management of a company, we feel it misses the point. Investors typically start their engagement process by meeting a company before an investment is made. Prevention is the best way of solving corporate governance concerns and if investors wait until something has gone wrong before they start to engage, it will often be too late to solve the problem.

The whole thing is worth a read.