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FRC chairman encourages high standards in companies and by investors

Some UK investors can do more to show their commitment to the Stewardship Code’s principles according to Sir Win Bischoff, chairman of the Financial Reporting Council (FRC) speaking at the Chartered Banker’s Culture and Conduct Forum for the Financial Services Industry this week.

Sir Win Bischoff

Sir Win Bischoff

Bischoff said that the FRC encourages investors to explain their stewardship policies and practices through the Code, thereby hopefully improving transparency about their relationships with companies, including behaviours and values. He said that the stewardship code was developed to achieve a number of objectives: to help build a critical mass of investors that are willing and able to engage with the companies in which they invest; to increase the quantity and quality of engagement between companies and investors; and to help clients of asset managers differentiate between them by judging how they carry out their stewardship responsibilities.

The investigation by the FRC into the application of the code by investors had shown, Bischoff said, that a number of signatories are not fully demonstrating their commitment to the Code’s principles. This is why we are moving to distinguish between signatories who report well and prove their commitment to stewardship, and those where improvement is necessary. In that context I believe investors should also look at their own culture, not just at the culture of the companies they invest in, he said.

The aim of the FRC, Bischoff said, is to raise the quality of reporting and bring more transparency to the market. In assessing whether stewardship is being implemented appropriately, it would look at the quality of explanations. This was a first step towards better stewardship and engagement and will provide the baseline for future monitoring, he added.

Bischoff noted the changing investment landscape with portfolios being increasingly global placing more demands on  both companies and investors. Stewardship requires all of those in the investment chain to be considering issues in the context of comply or explain and applying independent judgement to their decisions, Bischoff said.

In respect of the corporate governance code Bischoff said that ultimately it was for boards, preparers, auditors and other professionals to implement the standards the FRC sets; its role was to support them as far as possible by reinforcing best practice and providing a regulatory framework that is seen as realistic, helpful and proportionate. This is why over the next three years, the FRC intends to work with its  stakeholders to encourage improvement rather than to introduce new requirements that add to the regulatory burden. It is hoped that the culture coalition, a collaboration with major professional bodies as well as the IBE  and City Values Forum will help to bring about these improvements. Its work  so far has found that the chief executive (CEO) has the largest influence on a company’s culture and a board’s role is to have responsibility for selecting, performance-managing, and holding CEOs to account. Meanwhile the values of the company need to be embedded across the organisation so that management endorse them so that good corporate behaviour is rewarded and poor behaviour is punished, Bishchoff said.

What do you think?