A misinterpreted sense of fiduciary duty in the investment chain is contributing to market short-termism, says campaign group Fair Pensions.
“We have concluded,” it says, “that investors’ fiduciary duties, as currently interpreted, are acting as a driver of short-termism when they should do the opposite.”
It reiterated its suggestion that a parallel version of the Companies Act provision on directors’ duties could be developed for institutional investors. This would “clarify” fiduciary obligations and “dispel misconceptions which have become dysfunctional”.
It has also called for the government to force asset owners to disclose how they vote at company shareholder meetings. Many beneficiaries, it argues, would prefer their funds to take a more long-term approach to a host of voting decisions – but are rebuffed when they ask about their funds’ stewardship practices. “Given the slow progress in this area, we would favour the use of the government’s reserve powers to introduce mandatory voting disclosure,” the group said in a wide-ranging submission to the government’s Kay Review into long-termism.
Renowned economic commentator Professor John Kay was tasked by the government to review UK equitymarkets and long-term decision making in June – and the comment period ended last week.
Regular reporting by investors, Fair Pensions argues, “could help to promote more meaningful stewardship” by increasing accountability to ultimate beneficiaries.
It was skeptical that the removal of ‘acting in concert’ rules would prompt more engagement, as there is a “cultural unwillingness” among investors for collective engagement.
It said the Stewardship Code must tackle the underlying assumption that the duty of institutional shareholders is to maximise short-term return. “Without this, simply promoting engagement will not necessarily lead to good stewardship.”
The group also revealed it is surveying commercial pension providers on their policies and disclosures on engagement and responsible investment. Early findings are that they have some way to go in recognising their role as asset owners.
The Kay panel also comprises Sir John Rose, the former chief executive of Rolls-Royce, James Anderson, chief investment officer at Baillie Gifford, and Chris Hitchen, chief executive of Railpen. Kay Review