

The UK’s financial reporting watchdog, The Financial Reporting Council (FRC), has launched a consultation on its proposed Stewardship Code for institutional investors with assets in the UK, one of the key regulatory recommendations of last year’s Walker Review on governance at UK banks and financial institutions. Notably, the 37-page consultation document says investors should consider in their submissions whether they could better align the performance goals in their mandates with their savers’ “long-term interest in market stability”. It suggests the FRC is backing the views of Lord Myners, the UK Financial Services Secretary, that institutional investors should aim to run longer-term mandates in order to buck market short-termism. The consultation is also seeking views on what information institutional fund managers and pension funds should make publicly available to their clients and scheme members. It also asks what institutional shareholders’ responsibilities on corporate engagement should be.
Views are also being sought on which institutional investors and agents should be encouraged to apply the code on a “comply or explain” basis, what they should be asked to disclose and to whom, and the monitoring arrangements that should be put in place.
For example, the FRC has asked whether proxy votingagencies and investment consultants should be “encouraged to commit to the spirit of the code”. The extended Stewardship Code role for the FRC adds to its existing oversight of the Combined Code for corporate governance.
Sir Christopher Hogg, FRC chairman said: “The benefits of a code which can help to bring about more effective engagement between companies and shareholders are potentially significant. They should lead to sustainable and enduring improvements in the governance and performance of UK listed companies and greater clarity in the respective responsibilities of asset managers and asset owners, which will assist the ultimate owners to hold to account those acting on their behalf.”
The consultation ends on April 16, with the outcome due in May or June.
Ben Heineman, senior fellow at the Harvard Law School Program on Corporate Governance, writes in the Harvard Business Review that the proposed code is a “third way” in corporate governance. He calls it “an interesting and potentially controversial approach which puts new responsibilities on the investor and investee communities” – and one that has not received the attention it deserves.
Link to FRC consultation document