Northern Rock's shareholders flex their muscles..

The clash between shareholders and their managers is a popular theme in the first Chapter of any Corporate Finance Textbook. The shareholders are seen as the principal stakeholders in any company. Remember they actually own the business. The managers are acting as their agents in terms of directing the daily operations of the company. We always expect the managers of the company should spend their whole time ensuring that they are maximising the wealth of their shareholders. To keep it simple we normally take this to mean maximising the company's share price. So that is the theory well what about the practice?

The shareholders at Northern Rock have not had a happy time since the "credit-crisis" undermined confidence in their business model last Summer. Since then the share price has been in free fall. Well yesterday some of their shareholders started to fight back. At a meeting in Newcastle a majority of them supported motions proposed by the most Activist of the shareholders, RAB Capital and SRM Global. They were intended to prevent the Board of Director's selling the bank too cheaply or flogging of the Bank's assets too cheaply.

In the event only one of the motions passed the necessary 75% threshold. However, the outcome of this meeting should at least confirm that the shareholders are determined to fight for a fair deal in any moves to rescue the Bank. It is rumoured that the Government is still considering a public takeover of the Bank to safeguard the substantial public funds now invested in the beleaguered institution. We will have to wait and see.