FRC consults on revamped stewardship definition

by Hannah Brenton

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23 Apr 2012

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Life peer Baroness Hogg is a crossbencher in the House of Lords

THE FINANCIAL Reporting Council has started a consultation which could change the definition of stewardship in the UK.

As part of a series of proposed revisions to the Stewardship Code, the FRC said there is "confusion" over what ‘stewardship' means and hopes to "clarify what is meant by stewardship, its purpose and how it relates to governance", our sister publication Professional Pensions reports.

The Stewardship Code came into effect two years ago and sets out best practice for institutional investors engaging with the companies they invest in.

The proposed changes to the Code would refine the respective stewardship responsibilities of asset owners and asset managers and ask investors to disclose their policy on stock lending and whether they recall lent stock for voting purposes.

FRC chairman Baroness Hogg said the revisions being proposed to both the Stewardship Code and UK Corporate Governance Code were "deliberately limited".

She said: "The revisions on which we are consulting this time are deliberately limited. We want to build on the proven track record of the UK Corporate Governance Code and the promising initial response to the Stewardship Code by reinforcing rather than fundamentally changing the codes.

"We will maintain the ‘comply or explain' approach to improving standards of governance and ownership."

Many of the country's largest pension funds have signed up to the Stewardship Code since its launch, including BT Pension Scheme, Royal Mail Pension Plan, BBC Pension Trust and West Midlands Pension Fund.

But the Pensions and Investments Research Consultants questioned the effectiveness of the Stewardship Code earlier this month when it found 27 of the 175 asset manager signatories failed to publish all their voting data. (PP Online, 3 April)

The FRC is also consulting on other changes including requesting FTSE350 companies to put an external audit contract out to tender at least every ten years, asking boards to explain why they believe their annual reports are fair and balanced, and encouraging more meaningful reporting by audit committees.

The revisions would provide companies with more guidance on the explanations shareholders require when a company chooses not to follow the code and would ask boards to report on their gender diversity policies.

The Council is also looking at proposed changes to guidance for audit committees.

The regulator hopes to implement changes to all the codes in October, depending on the results of the consultation.


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