The framework includes a set of six corporate governance principles for companies to follow and six stewardship principles to guide fund managers. The stewardship principles encourage fund managers to carry out their shareholder voting responsibly and should work together if needed to encourage other institutional investors to sign up.
The Investor Stewardship Group said the principles, developed over the past two years, represented a sustained initiative to establish a framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.
Owning the vote
In contrast to the UK Stewardship Code which calls on investors to disclose whether investors use proxy advisory services, Principle D of the Investor Stewardship Group Code states: “Institutional investors are responsible for proxy voting decisions and should monitor the relevant activities and policies of third parties that advise them on those decisions.”
$17 trillion of Commitment
The institutional investors that make up the group are BlackRock, CalSTRS, Florida State Board of Administration (SBA), GIC Private Limited (Singapore’s Sovereign Wealth Fund), Legal and General Investment Management, MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset Management), State Street Global Advisors, TIAA Investments, T. Rowe Price Associates, Inc., ValueAct Capital, Vanguard, Washington State Investment Board, and Wellington Management.
Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System said: “In markets around the world, there are well-established governance and stewardship codes. The Investor Stewardship Group’s goal is to codify the fundamentals of good corporate governance and establish baseline expectations for U.S. corporations and their institutional shareholders,” The group brings all types of investors together and enables us to speak with one voice on these fundamental issues.”
Glenn Booraem, Principal & Fund Treasurer at Vanguard added: “We believe that the principles detailed in the Framework will further the productive dialogue and, most importantly, continue to drive positive change among institutional investors and the companies in which they invest. By articulating this set of shared behavioural expectations, we seek to promote our common objectives to create sustainable, long-term value for all shareholders.”
The Framework will take effect on 1st January 2018.
In terms of representing shareholder interests, The Investor Stewardship Group joins the ranks of The Council for Investor Rights and Corporate Accountability (CIRCA) which was launched by a group of activist investors in mid 2016 to raise awareness and understanding of their particular form of active ownership. CIRCA’s membership includes Elliot Management Corporation, Icahn Enterprises L.P., JANA Partners LLC and Pershing Square Capital Management, L.P.
CIRCA states that it is “committed to promoting the actions of shareholder activists, and their positive impact on corporate governance and business policies at publicly traded companies.” Bearing in mind that Carl Icahn, chairman of Icahn Enterprises is currently acting as a special adviser to US president Donald Trump on regulatory reform, one of CIRCA’s lobby positions is particularly notable, Free Competition of Ideas: “Companies are run by their boards of directors and management teams as fiduciaries for the shareholders who own these enterprises. Engaged shareholders can be crucial in providing new ideas to address underperformance and oversight to ensure corporate accountability. Our regulatory system should enhance rather than burden this competition of ideas to produce the best results for shareholders, companies and the economy.”
It remains to be seen which group will have most influence in the rapidly changing US regulatory environment.