ICGN releases guidance on institutional investors’ responsibilities and gender diversity

New advice from international governance body

The International Corporate Governance Network (ICGN) has issued new 12-point guidance on investor responsibilities as well as new advice for investors on advocating for gender diversity in boardrooms.

The Statement of Principles for Institutional Investor Responsibilities outlines the issues for which the ICGN believes investors must develop adequate policies. The principles are divided into two categories; six concern institutions’ own internal governance and six regard their external responsibilities.

Paul Lee, a director at Hermes Equity Ownership Services and co-chair of ICGN’s shareholder responsibilities committee, says the new report builds on ICGN’s 2007 guidance regarding institutional investors’ responsibilities as shareholders, and that the new principles turn the lens on investors’ own operations.

“The area of institutional investor governance has been neglected and needs to be addressed, in ICGN’s view,” Lee said. “A lot of work has been done on corporate governance, and this guidance is just reflecting that into the world of institutional investors.”

The themes that fall within the purview of investors’ own internal governance include the avoidance of conflicts of interest, the development of appropriate remuneration structures, and the importance of independent board oversight. In its commentary on investors’ external behavior, the report endorses proactive engagement in portfolio companies, collective engagement whereappropriate, proxy voting, and the disclosure of clear investment policies.
The gender diversity guidance is the organization’s first full piece on the topic. The report entreats investors and companies to acknowledge that diverse boards “are better able to generate appropriate discussion, thereby generating and preserving enhanced value for investors.”

“Clearly this is an issue that has become highly prominent politically and in the corporate sphere,” Lee said. He added that it’s an area investors need to act on “in order to get highest-quality boards we can to lead companies effectively and drive values over time.”

The ICGN’s specific pieces of guidance are divided according to their intended target: shareholders, or the boards of companies themselves. Shareholders are urged to open dialogues with their portfolio companies around gender diversity, and make clear to regulators and exchange operators their thoughts on the issue. For their part, boards should disclose specific targets for achieving a better gender balance, publish an annual assessment on its progression toward those goals, and ensure that gender diversity is a reality—or at least a goal—at all levels of the organization.

Lee said the ICGN would soon release a follow-up paper on the broader issue of diversity that looks beyond gender to focus on race, age, and other attributes.