The Financial Reporting Council is consulting on a “Stewardship Code” setting out good practice for institutional investors when engaging with UK listed companies in which they invest.
The Walker review on corporate governance recommended that the Combined Code should be split into a Corporate Governance Code for companies and a Stewardship Code for institutional investors. The Government then asked the FRC to assume responsibility for the Stewardship Code. The FRC is now seeking views on:
- whether the Code on the Responsibilities of Institutional Investors published by the Institutional Shareholders Committee in November 2009 (see here) provides a suitable basis for the Stewardship Code, in either its existing or an amended form (e.g. does it cover all relevant responsibilities, are there parts which require further guidance and does it cover the content of Section E of the Combined Code (dealing with institutional investors));
- which institutional investors and agents should be encouraged to apply the Stewardship Code on a ‘comply or explain’ basis; what they should be asked to disclose and to whom; and the monitoring arrangements that should be put in place;
- the responsibilities for engagement of institutional shareholders and their agents to the beneficial owners whose money they manage;
- how adoption of the standards in the Stewardship Code by UK and foreign investors can be encouraged;
- whether foreign investors would be willing to voluntarily commit to a code sponsored by a UK regulator such as the FRC or a UK industry body like the ISC, and whether there are any barriers or other reasons that would prevent or discourage them from doing so (e.g. conflicts);
- whether agents such as voting services agencies and investment consultants should be encouraged to commit to the spirit of the Stewardship Code, and, if so, how this could be done;
- the information that investors should disclose on their engagement policy and practice;
- the information that institutional shareholders should make publicly available and the level of detail required;
- the arrangements for monitoring how institutional shareholders apply and report against the Stewardship Code; and
- the arrangements for reviewing the operation and content of the Stewardship Code.
The consultation ends on 16 April 2010 and the FRC will announce the outcome in May or June 2010.
The consultation can be found here. See here for background on the Walker Review.