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The Actuary The magazine of the Institute & Faculty of Actuaries

Institutional investors more engaged on corporate governance

Institutional investors are making a concerted effort to engage more fully with the companies in which they invest, according to a new stewardship survey by The Investment Management Association (IMA).

The survey, ‘Adherence to the FRC’s Stewardship Code’ covering the period to 30 September 2010, reveals the widespread adherence by 50 UK institutional investors to the best practice set out in the Financial Reporting Council’s Stewardship Code.

Over 90% of major institutional investors now vote all or the great majority of their shares in UK companies and nearly two thirds now publish their voting records, the survey found, and 43 out of 50 respondents had published a statement on adherence to the Code, while another six did so subsequently.

In total, over 1,300 people focusing on stewardship activities were employed by the 43 respondents to the survey.

For the first time, the report includes in-depth case studies showing how institutional investors dealt with six controversial issues. In over 80% of cases, institutional investors believed they had achieved their set objectives in engaging on the issue.

The case studies cover a range of different issues, including remuneration, Board composition, environmental concerns, mergers and financing. All cases saw high levels of investor engagement with companies, which took a variety of forms, including meetings at senior Board level, consultation with other investors, and, in one case site visits. Outcomes varied from changes in Board policy to improved transparency; in one instance the outcome was reluctant acquiescence on the grounds that alternative courses were less satisfactory.

The six case studies and issues were:
>> Marks & Spencer Group plc - combined roles of chairman and chief executive
>> Tesco plc - remuneration
>> Barclays plc - board re-election following the refinancing
>> Lloyds Banking Group plc - acquisition of HBOS
>> Royal Dutch Shell plc - the environmental impact of the Canadian oil sands projects
>> Prudential plc - the acquisition of the AIG’s Asian operation

Liz Murrall, author of the survey and director of corporate governance and reporting of the IMA, said: "The aim of our survey was to find out what stewardship means in practice. The final report not only demonstrates that investors are transparent in their engagement activities, but also shows the extent of their influence over companies.

"Our survey reveals a picture of real long-term commitment to achieving value for shareholders. Much of the dialogue between companies and their investors takes place behind closed doors, but our survey illuminates that process, showing real and productive engagement which ultimately improves the governance of major UK companies."

The ‘Adherence to the FRC’s Stewardship Code’ survey covered the period to 30 September 2010 and focuses on the activities that support institutional investors’ commitment to the Code. The survey was completed by 50 of the 80 firms who had adopted the Stewardship Code by 26 November 2010, of which 41 were asset management firms, seven asset owners and two service providers. As at 19 May there were 124 asset managers, 26 asset owners and 11 service providers signed up and on the FRC’s website - 161 in total.

This was the first survey since the FRC’s Stewardship Code came into being in July 2010. The survey was carried out by the IMA under the direction of a steering group chaired by Stephen Haddrill, chief executive of the FRC.