Investors encouraged to rail against companies under new stewardship code

Investors are being encouraged to strong arm company boards if they don’t
agree on key issues, under a landmark stewardship code released today.

Institutional investors will be asked to draw up a list of escalating steps
they can take if they have concerns about the strategy and performance of a
company they invest in.

The Financial Reporting Council (FRC) today released its long awaited
Stewardship Code, drawn up in the wake of the crisis to encourage investors to
take an active long-term interest in their investments.

Among the principles, is a recommendation investors take their concerns
public prior to an annual general meeting or requisition an emergency meeting to
oust board members, if they feel important issues are not being addressed.

“If boards do not respond constructively when institutional investors
intervene, then institutional investors will consider whether to escalate their
action,” the code states.

The code will be enforced via the same comply or explain system used as part
of the UK Governance Code.

FRC Chairman Baroness Hog said she hoped the code would be a “catalyst for
better engagement between shareholders and companies and create a stronger link
between governance and the investment process”.

“Disclosures made by institutions under the code should assist companies to
understand the approach and expectations of their major shareholders,” she said.

The Confederation of British Industry (CBI) welcomed the new code. John
Cridland, CBI deputy director-general, said he particularly liked a provision
which encourages institutional investors to act collectively.

“Boards are being asked to raise corporate governance standards and increase
engagement with investors…but dialogue is a two-way street and institutional
investors need to raise their game too,” he said.

“This message should be particularly conveyed to foreign investors, who own
an increasing proportion of UK shares.”

Further reading:

Financial Reporting
Council

Watchdog
urges investor activism in new code

ACCA
voice concerns about stewardhip code