This post was written by Jeff Smith, who is no longer with the company.

The latest articleby David Peston, business editor of BBC News, on the dispute between Barclays and its institutional shareholders over executive compensation raises an interesting question.

The dispute is centred on how executives, especially those on the investment banking side, are incented. Should bonus payments be based on return on equity or return on assets? And, while it’s become generally accepted that shareholders have a ‘say on pay’, the more fundamental question that this particular dispute leads to is, how much influence should shareholders have over corporate strategy?

An unnamed institutional shareholder of Barclays is quoted in the article saying “Many of us want to see Barclays change its business model in a fundamental sense. We think it is too dependent on Barclays Capital, and that Barclays Capital’s ambition to be one of the world’s premier league investment banks is also not the way to go. We want to see Barclays reconstructing itself as a business with more stable, less volatile earnings, and a business which does not have to pay those massive amounts to investment bankers”.

Directors have a duty to do what is right for the corporation. When it comes to corporate strategy, they must consider the impact of that strategy on stakeholders (not just shareholders), and then broadly communicate that strategy to their stakeholders; what it is, why it’s right for the corporation, how stakeholders can assist in the successful implementation of the strategy, what the results of successful implementation should be and how the corporation and its stakeholders will benefit.

Shareholders can then judge the strategy and actions of the corporation and its board and decide whether to invest or not. It’s not up to them to set the strategy. By moving from a debate about how much executives are compensated to how executive compensation is set, shareholders are moving into territory that they are not best suited to judge.

Comment on compensation levels. Vote to support directors or not. Take investment dollars elsewhere. All are legitimate roles of shareholders. Setting strategic direction is not.

Peston concludes his piece saying “This gap between what Barclays’ big British shareholders want and the strategy of Barclays’ executives poses a serious dilemma for the bank’s non-executive directors. This tension will not be resolved quickly or easily.”

Quite right.