New investor group to tackle issues of engagement, stewardship
GLOBAL - A group of investors has launched a working group with UK think tank Tomorrow's Company that aims to improve institutional investors' quality of engagement with UK companies.
The group plans to identify the most effective engagement styles and practices and share that intelligence to make engagement more rewarding for investors and companies alike.
It also intends to make a significant contribution to this year's revision of the UK Stewardship Code.
Mark Goyder, founder and director at Tomorrow's Company, told IPE: "An informed market is a more efficient market, and if you have well-understood and well-agreed criteria for what good stewardship looks like, asset owners will find it easier to factor in stewardship in their decision making on which funds and asset managers to use."
Through interviews with chairmen and board members of leading UK companies, the working group is currently in the process of determining what the chief issues with engagement are.
Goyder said: "There is a general concern on both sides of the conversation that somehow less is more and that the huge amount of ritual and detail that seems to be going on risks crowding out quality conversations.
"There are obvious pressures in terms of the size of portfolios on the one hand - how can you give decent-quality attention to so many companies? And there are concerns about the kind of matters that dominate the conversation on the other.
"Companies are frustrated about the divide, inconsistency and sometimes even contradiction between the portfolio manager and the governance specialist and worry about voting being undertaken on a basis that does not reflect the actual conversation with the particular company."
Once the working group has established what is happening between companies and investors and what could be improved, it will be in a position to contribute to the review of the Stewardship Code, it said.
The group believes it can help with more rigorous thinking about what specifically needs to be improved.
At present, for example, one of the code's principles is collaboration, but it does not say what good collaboration is, according to Goyder.
"More thought needs to be given on when collaboration is appropriate and how to make it cost-effective," he added.
"We are breaking new ground here simply by facilitating a really thoughtful conversation. After one of the first company-chairman conversations, one of the six institutional investors involved commented that they had rarely, if ever, been involved in this quality of conversation - where both sides were learning from each other what could be done better."
First results are expected in time for the International Corporate Governance Network (ICGN) conference in London on 19-20 March.
At present, the group includes investment managers Aviva Investors, BlackRock and Ram Trust, asset owners Railpen Investments and the UK's Universities Superannuation Scheme (USS), as well as independent partnership Governance for Owners.
But Goyder said the group did not rule out broadening its membership at a later stage.
"If we want to see the market really benefit from improvements in engagement and stewardship, then it is going to have to spread wider than this group of six," he said.