Investor activism could overhaul the shape of capitalism, says economist

Roger Bootle, managing director of Capital Economics and author of Theory of Money, said capitalism is entering a new phase after the credit crunch, and greater shareholder challenge will play a key role.

He argued institutional investors’ failure to check the excesses of the banks was not their “finest hour” as they had not exercised their responsibilities fully.

“One of the tragedies of this crisis is the lack of clamping down on the boards of these companies,” he said.

He mocked the role of banks as “wealth creators” and said their role was often merely moving “the chips from one part of the table to another”. He added that the lack of check on their activity was one of several flaws in the market system.

Bootle’s comments contrasted with a speech given by Ray Martin, chairman of the NAPF investment council, who argued funds could be proud of their governance record.

He said: “We are good corporate citizens, not absentee owners. We know stronger companies mean stronger pension funds. It’s why NAPF has been at the forefront of raising standards in corporate governance over the past decade. And we will continue to be so.”

Bootle discusses his views at tinyurl.com/NAPF-Bootle.