UK - The Local Authority Pension Fund Forum (LAPFF) has published a plan for strengthening the governance of companies in which local authority pension funds invest.
Cllr Ian Greenwood, chairman, LAPFF, said: "This is not a moral crusade. It is about long-term investor value."
The plan calls for pension funds to question whether non-executives with multiple directorships have the commitment and available time to do a proper job, and to consider the role of directors of failed financial institutions, when deciding whether to vote for them at company annual general meetings.
It also advises members to resist any attempts by investee companies to use the current financial crisis as an excuse for relaxing compliance with the Combined Code.
The LAPFF is also seeking to ensure that remuneration arrangements are structured in the best long-term interests of shareholders, and is pushing for greater linkage between rewards and management of non-financial issues.
Greenwood said: "Companies are often reluctant to publicise their activities in non-financial areas of governance, but it could give comfort to the public to know about these activities."
The LAPFF also believes the audit committee report should be subject to an annual shareholder vote and should include a risk report.
However, Greenwood said its approach was to engage with company management as well as take action at company AGMs, and it was already talking to some of the high street banks on issues including remuneration and audit.
Meanwhile, Watson Wyatt is urging pension funds to develop an active ownership approach towards investee companies, rather than delegate shareholder rights to external managers.
In the paper "No action no option", the pension fund consultants noted Hector Sants, chief executive, Financial Services Authority, and Lord Myners, the UK's financial services secretary, have both recently stressed the long-term financial value of good governance.
"Some argue the problem [of governance weaknesses] lies not in the rules themselves but in their application. It is the relationships between company management, boards and shareholders which, in some cases, have failed," said Watson Wyatt.
The paper said while the best practice standards on responsible share ownership from the Institutional Shareholders Committee are voluntary, pension funds are nevertheless expected to provide an explanation for non-compliance.
It also warned that current governance failures could lead to mandatory disclosures of shareholder activity by pension funds.
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