Watchdog urges investor activism in new code

Investors could become the frontline in the battle against reckless company behaviour, under a proposed code being proposed by the UK’s financial reporting watchdog.

The Financial Reporting Council (FRC) has asked for feedback on a new Stewardship Code, aimed at pressuring investors to take an interest in the governance of companies they invest in.

The idea grew out of the Walker Review into corporate governance released in the wake of the crisis, which recommended “better engagement between fund managers acting on behalf of their clients as beneficial owners, and the boards of investee companies”.

The code will aim to set standards of stewardship for mainstream institutional
investors, potentially enforced using a "comply or explain" approach which has proven effective for listed companies.

FRC chief executive Stephen Haddrill has previously stated his intention to better engage with investors in the wake of the financial crisis.

“We need to talk more to the sovereign wealth funds, we need to talk more to other overseas investors, the US banks and so on and encourage them to take a stronger interest in the companies that they are either owning themselves or companies that they are owning on behalf of their customers,” he said in December.

Further reading:

FRC consults on Stewardship Code for Institutional Investors

Profile: Stephen Haddrill, chief executive, Financial Reporting Council

Haddrill: We don't need a Big Five