Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, May 20, 2010

New communication targets for IR?

The responses to regulatory consultations aren’t always very revealing, but Tesco’s response to the FRC Stewardship consultation was. They wrote “We have a concern about unengaged fund managers increasingly delegating voting decisions, either internally to governance departments or through an unquestioning following of the recommendations of shareholder representative bodies.”

In recent years, institutional investing and institutional voting of portfolio shares have diverged.
In many institutions, the people making investment decisions have relatively little or no responsibility for voting the institution’s portfolio shares, except on strategic issues such as mergers and acquisitions, disposals and the like. Shares are voted by corporate governance specialists on the basis of an in house model that is viewed as universally applicable.

Among the reasons for this is simply scale of the task. The number of portfolio companies and the number of issues are large and growing. (Witness the growth in ABI red tops for example).

This has created a high cost for the investment management community and as a result, the industry has increasingly outsourced strategies to a small infrastructure of corporate governance managers that rely on the application of one-size-fits-all voting policies which many argue take no account of the situation at any particular company.

This places as always a burden on the IR team to widen their communication targets. These need to include the specialist governance teams at institutions, but also especially at the proxy voting agencies. IR of course for its side will always want to engage directly, a sentiment which was probably behind the Tesco plea.

Many of the responses to FRC included requests that the FRC ‘encourage’ the proxy firms to engage with companies, in the same way as investors themselves.

Is there a role for regulation in this? Hopefully not, if the voting agencies do engage on a one to one basis, however the SEC is increasingly under pressure to ‘register’ voting agencies. A first step to authorisation, and even to regulation?


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