Update: What have Stewardship Codes ever done for us?

Thanks to everybody for their contributions

This week RI asked readers to vote on the effectiveness or otherwise of stewardship codes, and the results are in.

To re-cap, Senior Reporter Carlos Tornero and RI Editor Daniel Brooksbank debated the arguments for and against stewardship codes and we asked: “Whose side are you on?”

Carlos spoke of the codes as being like a Hippocratic Oath while Daniel countered they are trying to codify something which is inherently nebulous.

Some context: The pioneering piece of ‘soft’ regulation in the UK is a model globally but it is now almost 10 years old; it is being reviewed amid an uncertain future for the Financial Reporting Council, the watchdog that oversees the code.

Those voting for Carlos amounted to 38% while Daniel had 47% support, based on those who clicked for or against. But the ‘neither’ camp (which enabled users to comment) had just under 15% of the vote. Thanks to everyone who took part and here is a selection of the comments we received. They are very thoughtful and constructive and will help to inform the discussion as it evolves.

We stress that all comment and voting is anonymous via the Survey Monkey system.

Selected comments:

  • Agreed stewardship codes don’t ‘work’, but if we agree stewardship is a good thing, how do we promote it? What’s the alternative?
  • Both, our experience with the Code for Responsible Investing in South Africa is that endorsers can pay lip service with very little accountability, however, the shift, recently quite significant, has been from the asset owner community asking questions of their asset managers in terms of their implementation of the Code through ESG DD/Questionnaires and the like. The CRISA committee has also become more actively involved and broad based over the years.* There are good and not so good arguments for both camps. The Stewardship Code may not be ideal, but it has been a necessary step on a journey to provoke different thinking. Without it I think the companies would have been much less motivated to adhere to the governance code. The lack of asset owner participation has been a critical factor not addressed in the stewardship code, possibly not surprising given the way the SC was introduced in the aftermath of the GFC. The SC is neither carrot, nor stick, but perhaps that’s what its authors had in mind? Without a benchmark of success/failure, however, I don’t believe that we would have the regulatory impetus for ESG we’ve experienced since Kay onwards. As a means to a new end, the SC has therefore been extremely useful. The reality is that regulators have been busy tidying up after the GFC and S/Hs ESG were not #1 priority. That’s now changing and it’s time for stewardship to get the sort of attention previously reserved for the investment banks.
  • I’m more for Carlos (but can’t comment otherwise I click this box). The problem with Daniel’s position is that he does not propose anything better to replace it with. And while he makes case that it may not have had a positive impact (although we have limited counterfactual). I don’t think he makes the case that it is harmful and maybe a better iteration would work. I am willing to be convinced by Daniel, but I would want an alternative. Plus, this is very UK centric despite the ref. to Japan. Codes do seem to have developing markets more, where standards are lower though if you take it all the way to the top and what Carlos alludes too then neither solve the crisis in “purpose”.

Note: Voting is now closed.