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Following Professor Kay’s 2012 review of UK equity markets and the newly revised FRC Stewardship Code, there has been increasing debate over the different responsibilities in corporate governance and, in particular, on the role of institutional investors in overseeing the companies they invest in.
In this document, to help address these wide-ranging issues, ABI therefore reviews the existing roles and responsibilities in corporate governance and shareholder engagement and make recommendations on how these may be enhanced.
This report demonstrates that the UK Corporate Governance system and shareholder engagement are generally working well.
However, ABI members believe that practices can be improved; in particular, they make recommendations that should:
The ABI Executive will be shortly formalising its proposals to widen participation in existing collective engagements to non-members and launch the Investor Exchange
The ABI will consult members on how to develop a proactive methodology for identifying companies for engagement, which would be complementary to existing investor engagement.
Differentiated voting or dividend rights are likely to result in a number of unintended consequences and are likely to affect the interests of minority shareholders adversely rather than stimulate longer-term ownership.
AGMs remain an integral component of the UK corporate governance system and a key mechanism enabling shareholders to exercise their ownership obligations. There is no support for ‘virtual-only’ AGMs but shareholders encourage companies to consider how the meeting can be reinvigorated.
The existing ownership thresholds for requisitioning General Meetings and proposing shareholder resolutions remain appropriate. Consideration might also be given to simplifying the process to lower costs.
Clear specification of stewardship requirements of asset owners, particularly at the beginning of the client relationship, will improve understanding and enable corporate governance objectives to be reflected better in the investment agreement and agreed operational process.
To improve understanding at the outset, members would support the concept of developing a “Stewardship Mandate”, to be included as part of the investment agreement, to clarify and govern the client’s stewardship requirements. This could include the agreed range of stewardship activities to be undertaken by the asset manager on behalf of the client: for example, an annual review of the stewardship activities on behalf of the client, or, simply, confirmation that the investment manager is a signatory to the Stewardship Code. By extension, ABI encourages stewardship to be incorporated into the Statements of Investment Principles.