Institutions should disclose voting records under revised UK Stewardship Code

Tighter language in two-year-old code for institutional investors

Institutional investors who have signed up to the UK’s Stewardship Code will be obliged to disclose how they vote at company annual meetings following a revision to the code that comes into force next month.
The new version of the two-year-old code contains slightly changed wording to the guidance covering Principal Six on voting policy and disclosure.
Although the wording of the principle is unchanged, the advice has been subtly tweaked to remove the ‘comply or explain’ element of the former version.
The old version stated: “Institutional investors should disclose publicly voting records and if they do not explain why.”
But the new version states simply that investors “should disclose publicly voting records”, without the caveat.

The changes follow a consultation process earlier this year.

The guidance from the Financial Reporting Council watchdog also goes into more detail about the use investors make of proxy voting advisors.
It says: “They should describe the scope of such services, identify the providers and disclose the extent to which they follow, rely upon or use recommendations made by such services.”

The FRC says there was “strong support” for improved disclosure of investors’ use of proxy voting agencies, especially from listed companies.

But it has not included requirements about how proxy firms come to their judgments – but it will “review the need to so” given market and European regulatory developments.The FRC says it is still unclear if the European Commission will regulate the firms following the recent consultation by the European Securities and Markets Authority (ESMA).

The revision also calls on institutions to disclose their approach to stock lending and recalling lent stock.

“Institutional investors should disclose voting records”

It also calls on investors to explain more clearly the circumstances in which they will take part in collective engagement.

FRC Chair Baroness Hogg said: “The changes to the Stewardship Code are designed to give companies and savers a better understanding of how signatories to the Code are exercising their stewardship responsibilities.”

The code also encourages asset managers to have their stewardship processes “independently verified”.

The Stewardship Code, first published in 2010, sets out good practice for institutional investors on monitoring and engaging with investee companies and reporting to clients and beneficiaries. The FRC does not envisage further changes to the code until 2014.

The FRC has also issued a revision to the UK Corporate Governance Code, among which is a requirement for companies to explain, and report on progress with, their policies on boardroom diversity. This change was first announced in October 2011, but its implementation was deferred to avoid “piecemeal changes” to the Code.