RI Interview: UK’s new Investor Forum Chair Fraser on fostering more effective engagement

The body that grew out of the Kay Review speaks to RI.

The Investor Forum, the new body charged with improving investor-corporate dialogue in the UK, says it will engage with companies confidentially on behalf of its investor members on issues with sufficient support from large shareholders.

The group, chaired by ex-Fidelity investment chief, Simon Fraser, launched formally last October and has now released details on how it plans to foster a more effective engagement process in the UK.

Speaking to Responsible Investor, Fraser said the body was in the process of signing up investors formally and once it proves itself it hopes to start charging a fee next year.

Full membership is open to all investors in UK-listed companies.

Once an organisation becomes a member, it can raise an issue confidentially about a company it has exposure to. If the issue fits the Investor Forum’s engagement principles, it will find out privately if other shareholders have concerns. If there is enough support, the Investor Forum will start engagement with the company.

The Investor Forum’s principles for engagement are whether it is proactive and grounded in economic rationale, has a long-term focus – and a constructive solution.

Fraser – a former chair at the Foreign and Colonial Investment Trust as well as an ex-non executive director at Barclays – said if an issue fits the Investor Forum’s principles for engagement it would spend time with investors to gather concerns, build a high-level consensus on the issue and approach the company about engagement. It will agree milestones and outcomes with investors and evaluate whether the engagement has been a success.

The forum was one of the key recommendations to come out of the Kay Review in 2012, though there has been some form of institutional investor engagement body in existence, with varying degrees of success and under various names, before. The new body will be closely watched, as other similar bodies have sprung up worldwide, most recently in Japan.“We think the approach is different to the past,” he said. “Investors have their own engagement and relationship with companies, which is more fundamental than ours. But communication can get lost in translation. Talking to 12 investors and circling back to the chairman is more thoughtful. It is very confusing if different investors are saying different things.”

“We think the approach is different to the past”

All communication with the Investor Forum by investors will be kept private, and its engagement with companies will also not be made public, unless parties agree on this. This way, says the Investor Forum, fund managers “are not sharing their hand, and lifting the lid on their model or dark secrets on their views of companies”.

Fraser added that the approach would “de-personalise” the engagement process. “Headlines are often about individuals, or the shareholders concern about business. If you can de-personalise it – the engagement can be much more fundamental.”

Fraser said it was still early days, but the organisation seemed to be pushing on an open door on both sides. It has met with some 60 chairs of FTSE100 companies and has had 93 meetings with asset owners, asset managers, regulators, audit firms, lawyers and investment consultants.

He said though there was a lot more to do, given that the UK market is 53%-owned by international investors: “They are not used to the UK model of engagement. Some come from a country where collective engagement is viewed as a legal risk.”

He said it was important to clarify the legal uncertainty around rules in the US, adding the forum is working with Freshfields and other law firms on this.

He said the Investor Forum’s next document would be in this area, which was critical if it wanted to get the support of sovereign wealth funds.