UK MPs suggest Stewardship Code improvements in anniversary report

UK Members of Parliament (MPs) for the opposition Labour Party, Chukka Ummuna, Shadow Secretary of State for Business, and Chris Leslie, Shadow Financial Secretary to the Treasury, have suggested three policy levers where they think the current UK corporate governance regime could be improved under the Stewardship Code as a response to the global financial crisis. The recommendations form part of a series of thought papers by governance specialists issued by PIRC, the UK proxy voting company. They look at the progress of the UK Stewardship Code just over one year after its introduction in July 2010. The Stewardship Code is a voluntary initiative that came out of a recommendation in the UK’s 2009 Walker review on governance at banks and financial institutions. Its aim is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns. However, in their paper, Ummuna and Leslie say a stronger and more sustainable system of corporate governance is needed to boost Stewardship and try and avoid financial crises. They say that one lever that might help ensure the Stewardship Code is notjust seen as a “nod in the direction” of corporate governance could be to publicly commend investors that have an active engagement policy with companies. Another issue they say that may be blocking the progression of Stewardship and investor collaboration is the current set of rules for acting in concert. The MPs say these should be reviewed to see whether they are fit for purpose and actually allow shareholders to carry out collaborative corporate engagements, which they say could fill a “democratic deficit” for shareholders whereby it is rare to influence company strategy without a near impossible 50%+ share of the vote. Another recommendation the MPs make is for shareholders to be more involved in the nominations of corporate directors. The leader of the Labour Party, Ed Miliband has also called for worker representation on company remuneration panels and for companies to publish more information on top pay.
The Stewardship report contains papers from organisations including the Association of British Insurers, the Trades Union Congress, and BlackRock, the world’s largest asset manager. Link to report