The Investor Forum should take a more pro-active approach in its collective engagement role, the House of Commons’ Business, Energy and Industrial Strategy Committee has recommended, after officially concluding the parliamentary inquiry on corporate governance launched in the last quarter of 2016 on the back of corporate failures at BHS and Sports Direct.
The long-awaited parliamentary report, published today (April 5), lists numerous suggested reforms to the Corporate Governance and Stewardship Codes and in parallel explicitly mentions the enhancement of the Investor Forum’s role among the measures to improve the UK governance system.
The BEIS Select Committee worded the recommendation this way:
“We recommend that the Investor Forum seeks to become a more pro-active facilitator of a dialogue between boards and investors by engaging in regular routine dialogue in order to pick up on any widespread concerns.”
The Investor Forum was launched in October 2014 to help facilitate a better dialogue between boards and their shareholders.
It grew out of a recommendation from the Kay Review of UK Equity Markets and Long-Term Decision Making.
The BEIS report described the Investor Forum as a positive development which has helped to provide a space for collective engagement to take place, with 33 members representing some 35% of the value of the FTSE share index.
MPs, however, observed that it has so far limited its engagement to only the most serious cases such as Sports Direct.
“The Forum is a welcome initiative but it has the potential to develop much further,” the report stated.
Simon Fraser, the former Fidelity investment chief who chairs the Investor Forum, gave oral evidence in the BEIS inquiry.Committee chair Iain Wright asked Fraser whether it was fair to say that, in light of cases such as Sports Direct, shareholders do not really care about corporate governance.
Fraser said: “I do not think that is the full story. The reason we were set up was to try to put governance firmly back into the investment decision-making process.”
Regarding Sports Direct, Fraser said shareholders were heavily involved in the governance issues from the very earliest case.
He added: “We have been involved only in the last couple of years. It is an exceptional case, because, ultimately, shareholders do not have the power to change things at Sports Direct, given that the independent shareholders have less than 50% of the overall vote. That is probably an exceptional case within the premium listed companies in the UK.”
Kay provided written testimony to BEIS, and noted that the Investor Forum is working effectively and that it has played a constructive role.
“I hope that the Forum will move on to tackling generic issues in the corporate sector as well as ones relating to individual companies,” he stated.
The Investor Forum was not immediately available for comment but published a statement in which it welcomed the Select Committee’s “constructive recommendations” and “the recognition of the Investor Forum’s contribution to the UK’s stewardship landscape”.
At the time of its creation, Neil Woodford, former star fund manager at Invesco Perpetual and founder of Woodford Investment Management, doubted how useful the Investor Forum would be likening it to “herding cats”.
Daniel Godfrey, then CEO of the Investment Management Association (and later ousted in 2015 for calling for the industry to put client interests first), said the forum idea would “move forward or be killed quite quickly”.