UK - Four bodies representing the UK investment and pensions industry have called for clarity on rules concerning shareholders seen to be ‘acting in concert', so investors may act collectively to get key messages across to companies they invest in.
Collectively known as the Institutional Shareholder Committee, The National Association of Pension Funds along with the Investment Management Association, the Association of Investment Companies and the Association of British Insurers have today announced they will turn what is currently a Statement of Principles on the responsibilities of institutional shareholders into an ISC Code once terms have been reviewed.
"Investors will be able to sign up to it and report publicly on how they apply the Code," said the ISC, which will then publish the list of signatories to "help beneficiaries to make informed choices when issuing mandates to fund managers".
In order to complete the task, the ISC needs confirmation of existing rules in some cases so it may appropriately encourage more institutions to engage in shareholder activism.
More specifically, the ISC emphasised there is a "clear need for fund managers to have clear mandates from those that appoint them" but argued in order to put in place steps to improve communications with companies, it needs the regulatory authorities to clarify the rules on ‘acting in concert' and the treatment of insider information.
It was also critical of investors who have not used their right to vote against resolutions, and said shareholders or their agents "should be prepared to use the full range of their powers" as "investors have on occasion been too reluctant to act in this way".
The ISC said shareholder who delegate responsibility for engagement with companies they invest in should ensure they have a firm policy in place for the fund manager, and publish that policy as part of steps to ensure it is followed.
Officials said in the four-page document that any dialogue network "might include foreign investors and sovereign wealth funds with an interest in long-term value", in a bid to resolve problems with companies.
Among the proposals also set out as part of the collective's response to the Walker Review of banking corporate governance and the Financial Reporting Council's review of the Combined Code, the ISC suggested chairs of key board committees at companies should be required to stand for re-election every year, and individuals should be required to stand for election the following year in situations where they not receive over 75% of votes cast.
Similarly, the chair of a board should be required to retain overall responsibility for communicating with shareholders and report any concerns express to the board.
Commenting on the joint paper's conclusions, David Paterson, head of corporate governance at the NAPF, said: "It is evident now that shareholders must be particularly vigilant where they are invested in complex businesses or ones which have a dominant CEO."
He continued: "As one of the largest owners of UK listed companies, the pension fund industry has an important role to play in ensuring that its fund managers are held accountable for the effective application of agreed corporate governance policies, consistent with the revised Myners' Principles which were published last year."
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