By Simon Jessop and Ben Martin
LONDON (Reuters) - Britain's biggest stock market investor is urging non-executive directors in companies in takeover situations to obtain independent advice to make sure they do not sign up to a bad deal and destroy shareholder value.
Sacha Sadan, who heads up corporate governance at Legal & General Investment Management (LGIM), said he had made the request to around 80 non-executive directors and directors of Britain's leading companies at a recent event hosted by the fund firm.
Most deals rely heavily on adviser banks paid a cut of the final deal value, meaning they are not incentivised to advise against a bad one, although boards can ask a separate bank to give a second, so-called 'fairness opinion' for a flat fee.
Building on this, Sadan said LGIM also wanted non-executive directors (NEDs) to get their own independent advice that was paid for on a fixed-fee basis, to ensure they could protect the interests of shareholders.
"Large M&A is very important to investors and can add or destroy value. M&A is transformative in nature and tends to have a life of its own once momentum gets going," Sadan said.
"We believe that NEDs remain the most obvious route to upholding a rigorous governance framework. M&A is a key stewardship topic for LGIM clients."
LGIM has around 64 billion pounds of its more than 1.1 trillion pounds invested in Britain's 350 biggest companies, Thomson Reuters data show, behind U.S. index-tracking rivals BlackRock and Vanguard.
Looking ahead to 2018, Sadan said he expected to see fewer revolts over executive pay as most companies were taking steps to rein in excessive packages.
"The biggest ones that were seen as at the far end in the rankings - Reckitts (Reckitt Benckiser), WPP, BP, Glaxo - have all reduced significantly. Now, if they're all reducing, you wouldn't want to be the one going through that.
"There might be one that tries and might have a valid reason, but ... the trend is definitely against that."
More needed to be done on the complexity of some packages, he said, although the data showed most companies had scaled back the number of long-term incentive plans (LTIPs) used.
In 2011, 46 percent of companies had two or more LTIPs, although this had fallen to 14 percent in 2016, Sadan said.
A key area of engagement is expected to be climate change, with LGIM prepared to vote against the re-election of the chairman at large companies which it determines in a second-quarter assessment are performing poorly against their peers.
"To us, that is a really big policy change. We are now pushing very hard on climate change," Sadan said, including checking whether companies are paying lobbyists to argue against climate change.
Succession planning and cyber security would also be areas of focus, he added.
(Reporting by Simon Jessop; Editing by Mark Potter)