Conference key note speeches came thick and fast at the ICGN’s London conference at the Guildhall this week. The three leading actors in the UK’s governance reform, Sir David Walker, Lord Myners and Sir Christopher Hogg each presented their individual perspectives to a global audience keen to hear what the UK has to offer the stewardship debate.
Sir Christopher, Chairman of the Financial Reporting Council, is currently overseeing the review of Sir David Walker’s proposed “Stewardship Code”, the comply or explain code of conduct for investors. Informed engagement is a key aspect of the proposed code and Sir Christopher presented his view of engagement as “the purposeful communication of views between quoted companies on the one hand and investors on the other.”
Reinforcing the behaviour theme which has emerged from the increased focus on this most recent batch of governance failures, Sir Christopher was emphatic that the success of engagement between companies and investors would require changed attitudes, practices and policies on both sides. And while public opinion might be looking for quick fixes, he acknowledged that the process would likely take years and not months.
Shareholder monitoring is being profoundly affected by major shifts in the investment industry including:
Increasing internationalisation of shareholdings in UK equities;
Decreasing ownership of UK equities by UK-based long-only investors;
Increasing competitiveness in the asset management industry coupled with portfolio diversification Intense short-termism; and
Intense short-termism created by disconnects in time horizons between the ultimate beneficiary and the professional investors driving for performance.
Through its consultation processes the FRC hears view for an against increased shareholder involvemen. The arguments against increased engagement and oversight are, in Sir Christopher’s words “not, I believe, enough to let institutional investors off the engagement hook…. The argument that the cost of engagement is not in the best interests of the ultimate beneficiary must be tested against the facts and we should not take too readily the fund manager’s word for it.”
Global regulators and shareholder groups are watching the FRC’s stewardship of governance very closely. The proposed stewardship code would be the first of its kind and for it to become ingrained in the inveting psyche, all parties will need to be assured that all arguments have been dealt with both fairly and in the round. While governance reform sometimes appears to make haste slowly, in the FRC shareholders may have found a fair champion to further their cause.