Mandatory stewardship codes could boost investor-company relations – Mercer/Generation report

But little support found for Gore and Blood’s ‘loyalty shares’ idea

Existing voluntary ‘stewardship’ codes that seek to guide how investors interact with companies could be made mandatory to improve long-horizon investment, suggests a new report from consultants Mercer and law firm Stikeman Elliott that was commissioned by the Generation Foundation.

The first Stewardship Code was introduced in 2010 in the UK and has been followed by similar initiatives worldwide as a response to a perceived lack of oversight of companies by investors.

“Introduce stewardship codes in additional regions; move existing codes from voluntary to mandatory,” is put forward as one of a range of ways to facilitate stronger relationships between investors and companies in the report.

The report, Building a Long-Term Shareholder Base: Assessing the Potential of Loyalty-Driven Securities, was commissioned in December 2012 by the Generation Foundation advocacy arm of Al Gore and David Blood’s sustainable boutique Generation Investment Management.

It was written by Jane Ambachtsheer, Mercer’s Global Head of Responsible Investment, and her colleague Ryan Pollice, with Stikeman Elliott’s Ed Waitzer and Sean Vanderpol.Waitzer is a former Chair of the Ontario Securities Commission who is a director of the Network for Sustainable Financial Markets and the Sustainability Accounting Standards Board.

More than 100 asset owners, managers, company directors and industry and academics participated in the consultation. The report found little support for the introduction of loyalty shares, which were proposed by Gore and Blood in their influential Sustainable Capitalism manifesto last year.

Respondents identified discrimination between shareholders, the risk of unintended consequences and administrative complexities as obstacles.

Amid a range of ideas to help foster long-term investment thinking, the report also advocates a database of “sustainable financial market-certified” candidates for board/trustee/investment committees. This would be similar to US Diverse Director Datasource for corporate directors that is backed by US pension giants CalPERS and CalSTRS. The report says: “This could be developed as a global model, with local partnerships.”

It also suggests establishing what’s termed “an investor-issuer council for systemic risk” that would be focused on establishing a formal relationship between institutional shareholders and companies.