Myners: Pre-emption rights at heart of corporate governance

Paul Myners, who is conducting a Government-sponsored inquiry into pre-emption rights in company fund raisings, said yesterday that shareholders' right to prevent a company issuing new shares to outsiders goes to "the heart of corporate governance".

Paul Myners, who is conducting a Government-sponsored inquiry into pre-emption rights in company fund raisings, said yesterday that shareholders' right to prevent a company issuing new shares to outsiders goes to "the heart of corporate governance".

His review was launched after the UK's biotechnology industry argued that companies needed more flexibility to bring in new investors. The perennially cash-strapped industry has claimed that industry risks falling further behind the US if fund raising is not made easier, but institutional shareholders have been sceptical of the need to weaken cherished safeguards.

Companies are typically barred from issuing new shares totalling more than 5 per cent of their equity without first offering them to existing shareholders. The convention has grown up to prevent their stakes being diluted against their will or against their best interests.

Launching a document setting out the issues surrounding pre-emption rights, Mr Myners said there was confusion over exactly how guidelines drawn up in the Sixties should be interpreted. Companies may already have the ability to ask shareholders to grant them more flexibility, his discussion document suggests.

Mr Myners said the principle of pre-emption was not up for discussion. "Pre-emption rights are about ownership and control of companies, about how long-term strategic decisions on company growth are taken, and about the relationship between shareholders and the boards that they appoint. So they go to the heart of corporate governance."

The biotech industry argues that pre-emption rights should only kick in if a company wants to issue more than 20 per cent of new stock. David Chiswell, the founder of Cambridge Antibody Technology, said a change was one of several that are necessary to help UK biotech close the funding gap with the US, whose more vigorous biotech sector is often put down to its ability to raise more cash from the public markets. He said US investors in particular have been put off investing in the UK. "In a global market for fund raising, US investors often find pre-emption rights are a complication that they don't want to deal with," he said.