Big shareholders are not doing their job of holding companies to account properly, a business minister has said.
Baroness Wilcox called on institutional investors to be more involved in the businesses they own, claiming they do not always turn up at shareholder meetings.
Her comments came at question time in the House of Lords when Lord McFall of Alcluith, a former chairman of the Commons Treasury Select Committee, pointed to a "shameful" lack of shareholder engagement.
He said the present situation was "allowing the managerial class to prevail" and called for the Government to take action.
"There will be no long-term future for companies if there is not adequate shareholder engagement," he said.
Lady Wilcox, who had been answering questions about levels of pay, replied: "There is no doubt that shareholder engagement should, and I hope will, be improved.
"After all, they are the ones who can hold the companies' feet to the fire on the day when they ask to put the salary of the chairman and the chief executive up. It is only right and proper, and they are not doing their job well - particularly the very big shareholders, the big pension funds etc.
"I myself have sat on boards and have seen them not turn up at the shareholder meeting but have another meeting at another time and not be there.
"Usually you get small shareholders who turn up and make very, very good suggestions and then in come the proxy votes and there are millions of them."
She said the Government was doing everything it could to get shareholders to "use the power they have to put this right".