The Murdoch swat team rules at Sky

BIG shareholders flushed with victory over companies ranging from Barclays to BAT and Glaxo to Carlton looked like little more than flies in the hands of the wanton boys of BSkyB last week.

While media magnate Rupert Murdoch ostentatiously stood aside at the board meeting that unanimously supported the accession of his son James to the satellite broadcaster's throne, he was delivering quite another story on the other side of the world.

'None of those investors,' he said about the irritating band of shareholders who have had the temerity to express reservations about the anointment of James, 'put a penny into BSkyB.'

Now this will come as a surprise to those who stumped up millions when Murdoch floated 20% of BSkyB in 1994 and gave the group a stock market value of more than £5 billion. Since then, investors have paid for another 15% of the company.

And it speaks volumes about the way they have been, and can expect to be, treated as providers of money to this company. Little wonder that so many are suspicious - whatever young James says about reinstating dividends - that their interests may well come second to his father's 35% stake.

MURDOCH has always seen outside investors as having a free ride. And give or take the odd flirtation with bankruptcy in the early Nineties, he has probably not disappointed them.

But he has created a real problem for UK shareholders, who have come under even more pressure this week from Trade Secretary Patricia Hewitt to actively engage with companies and use their votes to effect change at annual meetings.

Yes, shareholders have expressed discontent. But realistically, even if Murdoch does the honourable thing and refuses to use his block vote in favour of his son at this week's annual meeting, there is little chance that the scattered band of outside investors will be able to insist on a better balanced board.

The attempt, albeit doomed, by some institutions to highlight the corporate governance failings at BSkyB should help demonstrate to the Government that fund managers are determined not to slacken in their new-found activism.

HOWEVER, to satisfy Hewitt, the huffing and puffing of the past few weeks will have to be translated into votes at this week's annual meeting. And here the institutions' words have been speaking far louder than their actions. In the latest round of annual meetings a paltry 50% of votes was cast.

In an ideal world, the investment firms that manage our pension and insurance savings would see that this was not the way to go on. Corporate governance, after all, is supposed to be based on the hypothesis that well-run companies will deliver superior returns for their shareholders.

But this financial argument is simply not cutting the mustard with enough fund managers for them routinely to use their votes intelligently.

If this Government is serious in wanting to encourage investors to be long-term holders of shares, to talk to managements about change, and to make the effort to vote, it must consider incentives.

An obvious place to start would be to hold out the prospect of giving back some of the £5 billion a year in dividend tax credits that Gordon Brown snatched as soon as he moved into the Treasury.

Relief could be reinstated for investors who hold on to shares for, say, three or five years, and who demonstrably use their votes.

Not only would this encourage the active investment the Government seeks, but fund managers hopeful of reclaiming lost billions would stop seeing corporate governance departments as cost centres and would view them as sources of profit.

Who knows, they might even be tempted to invest more in this part of the business and we might get better quality voting to boot. A virtuous circle if ever I saw one.