Mark Hynes - thoughts on corporate disclosure

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

Thursday, May 26, 2011

Stewardship report; improving but some way to go

"Quality of stewardship should drive mandates, the way quality of stock picking does,” This quote from the UK sustainable investment and finance association came in the run up to the launch of the UK Stewardship Code. There were some doubting Thomases who argued that the Code would become nothing more than a box ticking exercise, and that true engagement would take a while to happen.
However a new survey – field work carried out in September – suggests that progress is underway. The Investment Managers Association has launched its review, which indicates that almost eight in 10 UK institutional investors exercise their voting rights in all the companies in which they own shares. This confirms the UK as the country where investors are most likely to engage.

However, the Code’s impact is still unfurling. About one-third of respondents do not publish their voting records and about a quarter do not refer to the stewardship code in any of their mandates.

And IRO’s will be concerned that with less than half of their shares being owned by UK based investors, and with the ever shrinking time period of ownership, that this engagement is limited to a select few. The proportion of equity held by foreign investors, hedge funds, high frequency traders might not allow Stewardship Code signatories to influence outcomes as once they did.

However the survey provides some useful insights into how stewardship and engagement have operated positively. From the oft-cited Marks and Spencer, through Prudential’s proposed acquisition of AIG’s Asian businesses, and the (inevitable) debates on remuneration, there are examples where serious engagement between investors and companies has proved valuable.

There are some helpful messages for IR in this survey. Aside from the confirmation of increased voting participation, it affirms the need to reach out with the long term equity story – and notably on governance issues – to investors outside the traditional long-only UK investors. And the survey also highlights the increased cost of engagement to investors on governance and sustainability issues. The IR team that helps defray some of that cost through its communications programme will be appreciated.


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