FRC Chair criticises tick box asset manager ‘stewardship’, has considered delisting laggards

Sir Win Bischoff says asset owner pressure key to moving managers on UK code as reporting stagnates.

Sir Win Bischoff, the recently appointed Chair of the UK’s Financial Reporting Council (FRC), has sharply criticised the commitment of some asset managers signed up to the UK Stewardship Code and suggested that delisting could be one way of reviving flagging interest. Bischoff, the former Chair of Lloyds Banking Group, became Chair of the FRC, the UK governance and reporting watchdog, in May this year. Speaking at the UK National Association of Pension Fund’s (NAPF) Hot Topic Seminar on September 16, titled ‘Being Responsible Owners’, Bischoff said: “There are too many asset managers signed up to the Stewardship Code just to make sure they appear on the manager shortlists of pension funds. Very few are updating their stewardship profiles. One reason is that there are not enough asset owners signed up to the code, so it is perhaps no surprise that some managers feel justified in their tick box approach to stewardship. One option we’ve looked at is to delist managers that do not update their status.” Bischoff clarified, however that the FRC had no current plans to introduce delisting, saying that it was instead focusing on developing ‘imperatives’ for asset owners to hold their fund managers to account on stewardship. The UK’s Stewardship Code was introduced in 2010 following recommendations from the government-backed Walker Report by former Morgan Stanley International chairman Sir David Walker, on corporate governance in UK banks. The code, which encourages institutional investor voting, corporate engagement and reporting follows the “comply or explain” approach of the UK Corporate Governance Code. This means it does not require compliance with the principles, but does require an explanation why not on their websites. Thisinformation is then sent to the FRC, which links to the information provided. Speaking at the same NAPF event was Jeroen Hooijer, Head of Corporate Governance and Social Responsibility within the Directorate General for Internal Market and Services at the European Commission. The Commission is proposing more stringent investor accountability on voting and engagement in its revised Shareholder Rights Directive (SRD): see RI story
Bischoff said the FRC supported the Commission’s work on stewardship, but was concerned about the potential level of ‘prescription’ and subsequent reporting outlined in the planned directive. Hooijer said the Commission was conscious it did not want the SRD to become a disclosure burden but said it did want to stress the accountability of asset owners in imposing a long-term view on asset managers and companies and to be aware of the consequences of financial short-termism. Hooijer said a European Parliament rapporteur should be appointed within weeks for the SRD dossier. The rapporteur’s role is to report to Parliament the findings of a special committee on a particular dossier. He said he expected the European Parliament to be ready to vote on the SRD early next year with a ratifying vote in the European Council of government heads of the Member States by the summer. Member states then have two years to introduce EU regulation if a directive passes successfully the European Parliament and Council. Responsibility for the SRD was recently moved to the Directorate General for Justice (DG Justice) rather than the DG for Internal Market and Services (previously under Michel Barnier, now under Lord Jonathan Hill) as part of Jean-Claude Juncker’s reorganisation of European Commission portfolios.